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Lou, the sole owner of Water Corporation (a C Corp) owns 1,000 shares, which he purchased in Year 1. Lous basis in Waters stock is
Lou, the sole owner of Water Corporation (a C Corp) owns 1,000 shares, which he purchased in Year 1. Lous basis in Waters stock is $40,000. During Year 5, Water, which has earnings and profits of $80,000, redeems 900 of Lous shares for $60,000. What are the amount and the character of the income or gain Lou must report as a result of the redemption?
A. | $24,000 of capital gain. | |
B. | $60,000 of dividend income. | |
C. | $60,000 of capital gain. | |
D. | $24,000 of dividend. |
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