Bedrock Incorporated is owned equally by Barney and his wife Betty, each of whom holds 1,360 shares in the company. Betty wants to reduce her ownership in the company, and it was decided that the company will redeem 680 of her shares for $26,400 per share on December 31 of this year. Betty's tax basis in each share is $6,150. Bedrock has current E&P of $10,870,000, and accumulated E&P was $50,870,000 at the beginning of the year. a. What are the amount and character (capital gain or dividend) recognized by Betty because of the stock redemption, assuming only the "substantially disproportionate with respect to the shareholder" test is applied? b. Given your answer to part (a), what is the tax basis in the remaining 680 shares Betty owns in the company?
Bedrock Incorporated is owned equally by Barney and his wife Betty, each of whom holds 1,360 shares in the company. Betty wants to reduce her ownership in the company, and it was decided that the company will redeem 680 of her shares for $26,400 per share on December 31 of this year. Betty's tax basis in each share is $6,150. Bedrock has current E&P of $10,870,000, and accumulated E&P was $50,870,000 at the beginning of the year.
a. What are the amount and character (
b. Given your answer to part (a), what is the tax basis in the remaining 680 shares Betty owns in the company?
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