1. Steve owns Barb, Inc. and has grown the business over the last 15 years and is the sole owner. He decides to sell 40 percent of the corporate stock (all outstanding stock) on July 1, Year 1 to an ESOP for $8 million. His adjusted basis for his entire interest in the stock was $3 million. On February 4th, Year 2, Steve uses all $8 million to buy shares of Apple Stock. Which of the following statements is correct?
a. He will have a capital gain of $5.0 million in Year 1 for tax purposes.
b. He will have a capital gain of $6.8 million in Year 1 for tax purposes.
c. Steve will not have a capital gain in Year 1 for tax purposes.
d. Steve’s transaction does not qualify for non-recognition of gain treatment.
2. Jocko works for IBM, a publicly traded company that sponsors a stock bonus plan. Which of the following statements is not correct regarding the plan?
a. If Jocko has less than three years, he is permitted to diversify one-half of company match contributions that consist of IBM stock.
b. Jocko is permitted to vote the shares of IBM within his account.
c. Upon termination, Jocko must be given the right to receive IBM stock held in the plan as part of a distribution.
d. If the distribution of IBM stock is made to Jocko in installments over a two year period, then the fair market value of all employer securities distributed in the installment distribution will be taxable as ordinary income.