Problem:
Palmer Corporation has 1,000 shares of common stock outstanding owned by unrelated parties as follows: Jason, 300 shares; Erin, 300 shares; and Dawn, 400 shares. Each of the three shareholders paid $75 per share for the Palmer stock 10 years ago. Palmer has $800,000 of accumulated E & P, and $40,000 of current E & P. In January of the current year, Palmer distributes land held as an investment (adjusted basis of $260,000, fair market value of $220,000) to Dawn in redemption of all 400 of her shares. In December of the current year, Palmer distributes securities held as an investment (adjusted basis of $90,000, fair market value of $110,000) to Erin in redemption of 200 of her shares.
Requirement:
Question 1: What are the tax results to Dawn on the redemption of her Palmer stock?
Question 2: What are the tax results to Erin on the redemption of her Palmer stock?
Question 3: What gain or loss is recognized by Palmer Corporation on the two redemptions?
Note: Please provide step by step solution.