1. Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $100,000 and a fair market value of $270,000 on the date of the transfer. In the current year, Blue Corporation ( E & P $800,000) redeems 250 shares from Eleanor for $220,000 in a transaction that qualifies for sale or exchange treatment. With respect to the redemption, Eleanor will have a:
a. $195,000 capital gain.
b. $220,000 capital gain.
c. $195,000 dividend.
d. $220,000 dividend.
e. None of the above.
2. Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding. The remaining shareholders are unrelated to Lucinda. What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?
a. 880.
b. 484.
c. 393.
d. 220.
e. None of the above.
3. Kingbird Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. That stock is held by Amata (550 shares) and Esteban (450 shares), who are unrelated individuals. Kingbird redeems 200 of Amata's shares for $1,000 per share. Amata paid $300 per share for her Kingbird stock nine years ago. Which of the following statements is correct with respect to the stock redemption?
a. Amata has dividend income of $200,000.
b. Amata has a long-term capital gain of $140,000.
c. Amata's basis in her remaining 350 shares is $60,000.
d. Kingbird reduces its E & P by $200,000.
e. None of the above.
4. Leon owns 400 shares of the 1,000 outstanding shares of Crane Corporation (E & P of $650,000). None of the other shareholders of Crane are related to Leon. Leon acquired his Crane shares ten years ago for $60,000. Crane has operated several trades or businesses for more than five years. In the current year, Crane sells the assets of one of those trades or businesses and distributes the proceeds from the asset sale to the shareholders in a pro rata stock redemption. In this transaction, Leon receives $180,000 in redemption of 250 shares of Crane. As a result of this transaction, Leon will recognize:
a. No gain or loss.
b. $142,500 dividend income.
c. $180,000 dividend income.
d. $142,500 long-term capital gain.
e. None of the above.
5. The adjusted gross estate of Debra, decedent, is $8 million. Debra's estate will incur death taxes and funeral and administration expenses of $1 million. Debra's gross estate includes stock in Silver Corporation that she had purchased twelve years ago for $600,000 (date of death fair market value of $3 million). At the time of her death in 2011, Debra owned 80% of the stock in Silver Corporation. Silver Corporation (E & P of $4 million) redeems all of the estate's stock in the corporation for $3 million. Debra's will names her daughter, Dena, who owns the remaining 20% interest in Silver Corporation, as her sole heir. With respect to this redemption, Debra's estate has the following income:
a. $0.
b. $2.4 million long-term capital gain.
c. $2 million dividend.
d. $1 million dividend.
e. None of the above
6. Canary Corporation has 1,000 shares of stock outstanding. It redeems in a qualifying stock redemption 350 shares for $400,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million. What would be the charge to Canary's E & P as a result of the redemption?
a. $400,000.
b. $350,000.
c. $140,000.
d. $40,000.
e. None of the above.