What is the tax impact on the shareholders


A, B, & C are shareholders in ABC Corp., a "C" corporation formed to invest and develop real estate. A & B formed the corporation with A investing $50K cash, and B contributing land. B's basis in the land is $40K, and, at the time of contribution it had a fair market value of $50K. In return each shareholder received 100 shares of common stock. Some time later, C became a shareholder, by contributing land with a fair market value of $60K. Its basis to C is $30K. In return for the land, C received 100 shares of common stock. Appearing below are selected transactions for the entity. At the time of the transactions, ABC Corp. has a $150K balance in accumulated E&P.

1. All three shareholders redeem 10 of their shares of common stock, and, in return, each shareholder receives $10K.


a. What is the tax impact on the shareholders?


b. Explain your answer.


c. What is the tax impact on the corporation?


d. Explain your answer.

 

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Accounting Basics: What is the tax impact on the shareholders
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