Problem 19-57 (LO. 8, 9)

Broadbill Corporation (E & P of $650,000) has 1,000 shares of common stock outstanding. The shares are owned by the following individuals: Tammy, 300 shares; Yvette, 400 shares; and Jeremy, 300 shares. Each of the shareholders paid $50 per share for the Broadbill stock four years ago. In the current year, Broadbill Corporation distributes $75,000 to Tammy in redemption of 150 of her shares. Determine the tax consequences of the redemption to Tammy and to Broadbill under the following independent circumstances.

a. If Tammy and Jeremy are grandmother and grandson:

The transaction does not qualify for sale or exchange treatment.

Tammy will recognize dividend income of $ 75,000 (correct).

Broadbill Corporation's E & P is reduced by $ ______?? .

b. If the three shareholders are siblings:

The transaction does qualify for sale or exchange treatment.

Tammy will recognize a long-term capital gain of $ ______?? .

Broadbill Corporation's E & P is reduced by $ 75,000 (correct) as a result of the distribution.