stock_redemption_solutions

stock_redemption_solutions - TAX 5015: Stock Redemptions...

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TAX 5015: Stock Redemptions – SOLUTION updated: August 18, 2010 Rex, Steve, and Alex are the only shareholders of Lowell Corporation. Rex is unrelated to Steve and Alex. However, Steve and Alex are brothers. Each has owned 100 shares of Lowell Corporation stock for five years and each has a $150,000 basis in his 100 shares. Lowell Corporation's current E&P is $200,000 and its accumulated E&P is $400,000. Required: a. Lowell redeems all 100 of Steve's shares for $250,000, their fair market value. What is the amount and character of Steve's recognized gain or loss? What effect does the redemption have on Lowell's E&P? What are Rex’s and Alex's basis in their shares after the redemption? Attribution rules do not apply to siblings. Therefore, before redemption, Steve owns 1/3, after redemption he owns 0%. The stock redemption receives sale/exchange treatment (complete termination of shareholder’s interest – Section 302(b)(3)). Steve recognizes a LTCG of $100,000 ($250,000 – $150,000).
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stock_redemption_solutions - TAX 5015: Stock Redemptions...

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