Problem
X Corp. has (a) 100 shares of Class A common stock outstanding and (b) 50 shares of Class B common outstanding.
1. What are the U.S. tax consequences to all of the shareholders if X Corp. makes a pro rata distribution of nonconvertible preferred stock to both classes?
2. Assume, instead, that X Corp. made a pro rata distribution of nonconvertible preferred stock to both classes but Class B common shareholders have the option to take either cash or stock. What are the U.S. tax consequences to all of the shareholders?
3. Assume, instead, that X Corp. made a pro rata distribution to the Class A shareholders of Class A shares and a cash distribution to Class B shareholders. What are the U.S. tax consequences to all of the shareholders?