Comet Company is owned equally by Pat and his sister Pam, each of whom holds 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has a total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption? a) $25,000 capital gain and a tax basis in each of her remaining shares of $100. b) $50,000 dividend and a tax basis in each of her remaining shares of $50. c) $50,000 dividend and a tax basis in each of her remaining shares of $100. d) $25,000 capital gain and a tax basis in each of her remaining shares of $500.
Comet Company is owned equally by Pat and his sister Pam, each of whom holds 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has a total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption? a) $25,000 capital gain and a tax basis in each of her remaining shares of $100. b) $50,000 dividend and a tax basis in each of her remaining shares of $50. c) $50,000 dividend and a tax basis in each of her remaining shares of $100. d) $25,000 capital gain and a tax basis in each of her remaining shares of $500.
Chapter22: S Corporations
Section: Chapter Questions
Problem 52P
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Transcribed Image Text:Comet Company is owned equally by Pat and his
sister Pam, each of whom holds 100 shares in the
company. Pam wants to reduce her ownership in
the company, and it was decided that the company
will redeem 50 of her shares for $1,000 per share
on December 31, 2010. Pam's income tax basis in
each share is $500. Comet has a total E&P of
$250,000. What are the tax consequences to Pam as
a result of the stock redemption?
a) $25,000 capital gain and a tax basis in each of
her remaining shares of $100.
b) $50,000 dividend and a tax basis in each of her
remaining shares of $50.
c) $50,000 dividend and a tax basis in each of her
remaining shares of $100.
d) $25,000 capital gain and a tax basis in each of
her remaining shares of $500.
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