Solved by verified expert :576. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question PR
Ali is in the 35% tax bracket. He acquired 1,000 shares of stock in Cardinal
Corporation seven years ago for $100 a share. In the current year, Cardinal
Corporation (E & P of $1 million) redeems all of his shares for $300,000.
What are the tax consequences to Ali if:
a.
The redemption qualifies for sale or exchange treatment, and
Ali has no other transactions in the current year involving capital assets?
b.
The redemption does not qualify for sale or exchange
treatment?
577. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 91
Jill has a capital loss carryover in the current tax year of $80,000. She owns
1,000 shares of stock in Black Corporation which she purchased nine years ago
for $75 per share. In the current year, Black Corporation (E & P of
$800,000) redeems all of her shares for $600,000. Jill is in the 35% tax
bracket. What are the tax consequences to Jill if:
a.
The redemption qualifies for sale or exchange treatment, and
Jill has no other transactions in the current year involving capital assets?
b.
The redemption does not qualify for sale or exchange
treatment?
578. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 92
Hawk Corporation has 2,000 shares of stock outstanding: Marina owns 700 shares,
Russell owns 600 shares, Velvet Partnership owns 300 shares, and Yellow
Corporation owns 400 shares. Marina and Russell, unrelated individuals, are
equal partners of Velvet Partnership. Marina owns 25% of the stock in Yellow
Corporation.
a.
Applying the § 318 stock attribution rules, determine how many
shares in Hawk Corporation each shareholder owns, directly and indirectly:
Marina:
Russell:
Velvet Partnership:
Yellow Corporation
b.
Assume, instead, that Marina owns 75% of Yellow Corporation.
How many shares does Marina own, directly and indirectly, in Hawk
Corporation?
579. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 93
Egret Corporation has manufactured recreational vehicles for 8 years. In
addition, for the last 3 years, Egret has operated a separate division that
sells bicycle equipment. Francis, an individual, and Loon Corporation each
acquired 500 shares of stock in Egret (basis of $2,000 per share) 10 years ago.
In the current year, the bicycle equipment division is entirely destroyed by
fire. Egret Corporation decides to discontinue the business and distributes pro
rata all of the $5 million of insurance proceeds collected as a result of the
fire to Francis and Loon Corporation in redemption of 200 shares of stock from
each shareholder. Determine the tax consequences of the stock redemption to
Egret Corporation (E & P of $6 million), to Francis, and to Loon
Corporation.
580. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 94
Sam’s gross estate includes stock in Tern Corporation and Wren Corporation,
valued at $1.4 million and $980,000, respectively. At the time of Sam’s death
in 2011, the stock represented 22% of Tern’s outstanding stock and 27% of
Wren’s outstanding stock. Sam’s adjusted gross estate equals $6,500,000. Death
taxes and funeral and administration expenses for Sam’s estate total $980,000.
Sam had a basis of $350,000 in the Tern stock and $190,000 in the Wren stock at
the time of his death. None of the beneficiaries of Sam’s estate own (directly
or indirectly) any stock in Tern Corporation, but some of the beneficiaries own
stock of Wren Corporation. Consider the following independent questions.
a.
What are the tax consequences to the estate if all of its Wren
stock is redeemed by Wren Corporation for $980,000?
b.
What are the tax consequences to the estate if all of its Tern
stock is redeemed by Tern Corporation for $1.4 million?
581. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 95
The gross estate of Raul, decedent who died in 2011, includes 700 shares of
stock of Orange Corporation (basis to Raul of $400,000, fair market value on
date of death of $3 million). The estate will incur $2 million of death taxes
and funeral and administration expenses, and the adjusted gross estate is $8
million. Denise, Raul’s daughter and sole heir of his estate, owns the
remaining 300 shares of Orange Corporation’s (1,000) shares outstanding. In the
current year, Orange (E & P of $4 million) redeems all of the estate’s 700
shares for $3 million. What are the tax consequences of the redemption to
Raul’s estate?
