Cougar Company is owned equally by Cat and a partnership that is owned equally by his father and two unrelated individuals. Cat and the partnership each owns 3,000 shares in the company. Cat wants to reduce his ownership in the company and decided that the company will redeem 1,500 of his shares for $25,000 per share. Cat's tax basis in each share is $5,000. What are the income tax consequences to Cat because of the stock redemption, assuming the company has earnings and profits of $10 million? Note: Enter your answers in dollars not in millions. Dividend Tax free return on capital Capital gains from sale of stock 38

CONCEPTS IN FED.TAX.,2020-W/ACCESS
20th Edition
ISBN:9780357110362
Author:Murphy
Publisher:Murphy
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 35P
Question

Cougar Company is owned equally by Cat and a partnership that is owned equally by his father and two unrelated individuals. Cat and the partnership each owns 3,000 shares in the company. Cat wants to reduce his ownership in the company and decided that the company will redeem 1,500 of his shares for $25,000 per share. Cat's tax basis in each share is $5,000. What are the income tax consequences to Cat because of the stock redemption, assuming the company has earnings and profits of $10 million? Note: Enter your answers in dollars not in millions.

Dividend

Tax free return on capital

Capital gains from sale of stock

Cougar Company is owned equally by Cat and a partnership that is owned equally by his father and two unrelated individuals. Cat and
the partnership each owns 3,000 shares in the company. Cat wants to reduce his ownership in the company and decided that the
company will redeem 1,500 of his shares for $25,000 per share. Cat's tax basis in each share is $5,000. What are the income tax
consequences to Cat because of the stock redemption, assuming the company has earnings and profits of $10 million?
Note: Enter your answers in dollars not in millions.
Dividend
Tax free return on capital
Capital gains from sale of stock
38
Transcribed Image Text:Cougar Company is owned equally by Cat and a partnership that is owned equally by his father and two unrelated individuals. Cat and the partnership each owns 3,000 shares in the company. Cat wants to reduce his ownership in the company and decided that the company will redeem 1,500 of his shares for $25,000 per share. Cat's tax basis in each share is $5,000. What are the income tax consequences to Cat because of the stock redemption, assuming the company has earnings and profits of $10 million? Note: Enter your answers in dollars not in millions. Dividend Tax free return on capital Capital gains from sale of stock 38
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