Problem 19-49 (Algorithmic) (LO. 8) Julio Gonzales is in the 32% tax bracket. He acquired 3,500 shares of stock in Gray Corporation seven years ago at a cost of $120 per share. In the current year, Julio received a payment of $315,000 from Gray Corporation in exchange for 1,750 of his shares in Gray. Gray has E & P of $6,000,000. What income tax liability would Julio incur on the $315,000 payment in each of the following situations? Assume that Julio has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%. a. The stock redemption qualifies for sale or exchange treatment. Julio has of $ Julio's tax liability would be $ b. The stock redemption does not qualify for sale or exchange treatment. Julio has of $ Julio's tax liability would be $ c. For part (b), prepare Julio's Schedule B (Form 1040) to reflect the tax reporting required of the transaction. c. For part (b), prepare Julio's Schedule B (Form 1040) to reflect the tax reporting required of the transaction. SCHEDULE B OMB No. 1545-0074 2018 (Form 1040) Department of the Treasury Internal Revenue Service (99) Interest and Ordinary Dividends Go to www.irs.gov/ScheduleB for instructions and the latest information. Attachment Attach to Form 1040. Sequence No. 08 Name(s) shown on return Julio Gonzales Your social security number 123-45-6789 1 Amount Part I List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see instructions on back and list this interest first. Also, show that buyer's social security number and address Interest (See instructions on back and the instructions for Form 1040, line 2b.) 1 Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's name as the payer and enter the total 2 Add the amounts on line 1 2 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 3 interest shown on 4 Subtract line 3 from line 2. Enter the result here and on Form 1040, line 2b . that form. 4 Note: If line 4 is over $1,500, you must complete Part III. Amount Part II 5 List name of payer Gray Corporation Ordinary Dividends (See instructions on back and the instructions for Form 1040, line 3b.) 5 Note: If you received Form 1099-DIV or substitute statement from a brokerage firm, list the firm's name as the payer and enter the ordinary dividends shown on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040, line 3 6 Note: If line 6 is over $1,500, you must complete Part III. You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were grantor of, or a transferor to, a foreign trust. Yes No 7a X Part III Foreign Accounts and Trusts (See instructions on back.) At any time during 2018, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions .. If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements. If you are required to file FinCEN Form 114, enter the name of the foreign country where the -----I-------I---- b ordinary dividends shown on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040, line 3b. 6 Note: If line 6 is over $1,500, you must complete Part III. You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferorto, a foreign trust. Yes No 7 X Part III Foreign Accounts and Trusts (See instructions on back.) At any time during 2018, did you have a financial interest in or signature authority over financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions ... If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements If you are required to file FinCEN Form 114, enter the name of the foreign country where the financial account is located b During 2018, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If "Yes," you may have to file Form 3520. See instructions on back For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 17146N Schedule B (Form 1040) 2018 Problem 19-49 (Algorithmic) (LO. 8) Julio Gonzales is in the 32% tax bracket. He acquired 3,500 shares of stock in Gray Corporation seven years ago at a cost of $120 per share. In the current year, Julio received a payment of $315,000 from Gray Corporation in exchange for 1,750 of his shares in Gray. Gray has E & P of $6,000,000. What income tax liability would Julio incur on the $315,000 payment in each of the following situations? Assume that Julio has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%. a. The stock redemption qualifies for sale or exchange treatment. Julio has of $ Julio's tax liability would be $ b. The stock redemption does not qualify for sale or exchange treatment. Julio has of $ Julio's tax liability would be $ c. For part (b), prepare Julio's Schedule B (Form 1040) to reflect the tax reporting required of the transaction. c. For part (b), prepare Julio's Schedule B (Form 1040) to reflect the tax reporting required of the transaction. SCHEDULE B OMB No. 1545-0074 2018 (Form 1040) Department of the Treasury Internal Revenue Service (99) Interest and Ordinary Dividends Go to www.irs.gov/ScheduleB for instructions and the latest information. Attachment Attach to Form 1040. Sequence No. 08 Name(s) shown on return Julio Gonzales Your social security number 123-45-6789 1 Amount Part I List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see instructions on back and list this interest first. Also, show that buyer's social security number and address Interest (See instructions on back and the instructions for Form 1040, line 2b.) 1 Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's name as the payer and enter the total 2 Add the amounts on line 1 2 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 3 interest shown on 4 Subtract line 3 from line 2. Enter the result here and on Form 1040, line 2b . that form. 4 Note: If line 4 is over $1,500, you must complete Part III. Amount Part II 5 List name of payer Gray Corporation Ordinary Dividends (See instructions on back and the instructions for Form 1040, line 3b.) 5 Note: If you received Form 1099-DIV or substitute statement from a brokerage firm, list the firm's name as the payer and enter the ordinary dividends shown on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040, line 3 6 Note: If line 6 is over $1,500, you must complete Part III. You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were grantor of, or a transferor to, a foreign trust. Yes No 7a X Part III Foreign Accounts and Trusts (See instructions on back.) At any time during 2018, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions .. If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements. If you are required to file FinCEN Form 114, enter the name of the foreign country where the -----I-------I---- b ordinary dividends shown on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040, line 3b. 6 Note: If line 6 is over $1,500, you must complete Part III. You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferorto, a foreign trust. Yes No 7 X Part III Foreign Accounts and Trusts (See instructions on back.) At any time during 2018, did you have a financial interest in or signature authority over financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions ... If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements If you are required to file FinCEN Form 114, enter the name of the foreign country where the financial account is located b During 2018, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If "Yes," you may have to file Form 3520. See instructions on back For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 17146N Schedule B (Form 1040) 2018