Monica owns all 100 shares of Crown Corporation stock having a $ 0.9 million FMV. Her basis in the stock is $ 350,000. Crown's E&P balance is $ 550,000. Matt would like to purchase the stock but wants only the corporation's non-cash assets valued at $ 750,000. Mattis willing to pay $ 750,000for these assets.
Requirements:
a. What are the tax consequences to Monica, Matt, and Crown if Matt purchases 75 shares of Crown stock for $ 750,000 and Crown redeems Monica's remaining 25 shares for $ 150,000 cash?
b. How would your answer to Part a change (if at all) if Crown first redeems 25 shares of Monica's stock for $ 150,000 and then Matt purchases the remaining 75 shares from Monica for $ 750,000?