ABC corporation has 1000 outstanding stock shares:
- Shareholder E owns 100 shares with an adjusted basis of $10,000;
- Shareholder F owns 100 shares with an adjusted basis of $10,000;
- Shareholder G owns 200 shares with an adjusted basis of $20,000;
- Shareholder Howns 600 shares with an adjusted basis of $60,000.
All the shareholders paid $100/share 5 years ago and received $1000/share. None of the shareholders are related. ABC corp has earning and profits of $900,000.
1. If the corporation redeemed 400 shares of E's stock for $400,000, is the transaction treated as a dividend, sale of stock, or return of capital? What is the gain or loss or dividend income to the shareholder? What is the shareholder's remaining basis in his shares after the redemption? What is the reduction in corporate earnings and profits?
2. Assume the same facts except that ABC corp redeemed 200 shares of E's stock for $200,000. Is the transaction treated as a dividend, sale of stock, or return of capital? What is the gain or loss or dividend income to the shareholder? What is the shareholder's remaining basis in his shares after the redemption? What is the reduction in corporate earnings and profits?
3. ABC corp redeems 25 shares of E's stock ownership and F is a partnership of which E owns 40%. is the transaction treated as a dividend, sale of stock, or return of capital? What is the gain or loss or dividend income to the shareholder? What is the shareholder's remaining basis in his shares after the redemption? What is the reduction in corporate earnings and profits?