Problem 19-50 (LO. 8)

Julio Inc. is a shareholder of Gray Corporation and is in the 34% tax bracket. It acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio, Inc. received a payment of $150,000 from Gray Corporation in exchange for 1,000 of its shares in Gray. Gray has E & P of $1,000,000.

Assume that Julio has no capital losses.

If the stock ownership in Gray Corporation represented a 25% interest, what income tax liability would Julio incur on the $150,000 payment in each of the following situations?

a. If the payment qualifies for stock redemption sale or exchange treatment, the tax liability for a corporate shareholder would be $.

b. If the payment does not qualify for stock redemption sale or exchange treatment, the tax liability for a corporate shareholder would be $.