Robert owns 60 of 100 shares of Dazzle Corporations stock and 80 of 100 shares of Razzle Corp. stock. Roberts basis in his Dazzle shares is $12,000 and his basis in his Razzle shares is $8,000. Robert sells 30 of his Dazzle shares to Razzle Corporation for $50,000. At the end of the year of the sale, Dazzle and Razzle have E&P of $25,000 and $40,000 respectively.

a. How will the sale of the stock be treated for tax purposes? sale or dividend? b. What is Roberts basis in his shares of Dazzle and Razzle after the sale?

c. How does the sale effect the E&P of Dazzle and Razzle Corporation?