Teal Corporation, with E & P of $2 million, distributes property with a basis of $150,000 and a fair market value of $400,000 to Grace. She owns 15% of the outstanding Teal shares.
a. What are the tax consequences to Teal Corporation and to Grace if the distribution is a property dividend?
b. What are the tax consequences in (a) if Grace is a corporation?
c. What are the tax consequences to Teal Corporation and to Grace if the distribution is a qualifying stock redemption? Assume that Grace's basis in the redeemed shares is $90,000.
d. What are the tax consequences in (c) if Grace is a corporation?
e. If the parties involved could choose from among the preceding options, which would they choose? Why?