Grant, Pamela, and Thorton are unrelated shareholders in a corporation. Grant owns 40 shares (tax basis of $250 per share), Pamela owns 40 shares (tax basis of $2,500 per share), and Thorton owns 20 shares (tax basis of $2,500 per share) in the corporation. There are no other shares of stock outstanding. Grant agrees to have the corporation redeem 8 shares of her stock on June 1, 2020 for $80,000. At the time of the distribution the corporation had positive $500,000 in accumulated earnings and profits and positive $40,000 in current earnings and profits. Determine the tax consequences of the redemption for Grant.
Grant, Pamela, and Thorton are unrelated shareholders in a corporation. Grant owns 40 shares (tax basis of $250 per share), Pamela owns 40 shares (tax basis of $2,500 per share), and Thorton owns 20 shares (tax basis of $2,500 per share) in the corporation. There are no other shares of stock outstanding. Grant agrees to have the corporation redeem 8 shares of her stock on June 1, 2020 for $80,000. At the time of the distribution the corporation had positive $500,000 in accumulated earnings and profits and positive $40,000 in current earnings and profits. Determine the tax consequences of the redemption for Grant.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Grant, Pamela, and Thorton are unrelated shareholders in a corporation. Grant owns 40 shares (tax basis of $250 per share), Pamela owns 40 shares (tax basis of $2,500 per share), and Thorton owns 20 shares (tax basis of $2,500 per share) in the corporation. There are no other shares of stock outstanding. Grant agrees to have the corporation redeem 8 shares of her stock on June 1, 2020 for $80,000. At the time of the distribution the corporation had positive $500,000 in accumulated earnings and profits and positive $40,000 in current earnings and profits. Determine the tax consequences of the redemption for Grant.
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