Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Sunset Corporation, with E & P of $400,000, makes a cash distribution of $120,000 to a shareholder
Sunset Corporation, with E & P of $400,000, makes a cash distribution of $120,000 to a shareholder. The shareholder’s basis in the Sunset stock is $50,000.
a. Determine the tax consequences to the shareholder if the distribution is a nonqualified stock redemption
b. Determine the tax consequences to the shareholder if the distribution is a qualifying stock redemption.
c. Determine the tax consequences to the shareholder if the distribution is pursuant to a complete liquidation of Sunset.
Please show calculations for each answer and explain. Thank you. I need all three of these answered.
Dividend income; $120,000; Capital gain; $70,000; Capital gain; $70,000.
a. Dividend income of $120,000. In a nonqualified stock redemption, a distribution is treated as dividend income to the extent of the distributing corporation's E & P. (The $50,000 basis in the redeemed stock attaches to the basis of the remaining Sunset stock owned by the shareholder).
b. Capital gain of $70,000. A qualifying stock redemption results in sale or exchange treatment; thus, $120,000 amount realized - $50,000 stock basis = $70,000 capital gain.
c. Capital gain of $70,000. A liquidating distribution results in sale or exchange treatment; thus, $120,000 amount realized - $50,000 stock basis = $70,000 capital gain
