Question 1

A----J owns 50 shares of the 100 outstanding shares of common stock in Company X in which he has a $10,000 a/b and is worth $10,000. At a time when the company has $4,000 of E&P, the company issues 50 shares of preferred stock worth $10,000 to J. What tax basis does J have in his preferred shares

Js basis in his preferred stock: ______________________________________

B----In year 3, suppose J sells his 50 shares of preferred stock for $4,000. Describe the tax effects to J: