LO.7 Sean owns 1,000 shares or 40% of the outstanding stock of Crane Corporation C R I T I CAL THINKING

(E & P of $900,000). Sean purchased the stock 15 years ago for $50,000. For the last eight years, Crane has owned and operated three different trades or businesses. Pursuant to a plan adopted in the current year, Crane Corporation sells one of those trades or businesses and distributes the proceeds from such sale to its shareholders pursuant to a stock redemption.

Sean received a distribution of $200,000 in redemption of 500 shares of Crane stock.

Determine the tax consequences of the redemption to Sean and to Crane Corporation under the following independent circumstances.

a. Sean is an individual.

b. Sean is a corporation.