General Accounting question Stellar Corporation is owned equally by brothers Mark and Mike, eachholding 200 shares. Mike wants to reduce his stake in the company, andthey agree that Stellar will redeem 100 of Mike's shares at $800 pershare on March 15, 2024. Mike's tax basis in each share is $300. Stellarhas accumulated earnings and profits (E&P) of $320,000.Calculate the tax consequences for Mike from this stock redemption.Options:a) $80,000 dividend and tax basis of $300 in remaining sharesb) $50,000 capital gain and tax basis of $300 in remaining sharesc) $80,000 dividend and tax basis of $150 in remaining sharesd) $50,000 capital gain and tax basis of $150 in remaining shares

Step 1: Define Stock Redemption and Capital Gain TreatmentA stock redemption occurs when a…

Answered: Stellar Corporation is owned equally by…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter9: Acquisitions Of Property

Section: Chapter Questions

Problem 67P

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Round any computations to the nearest whole number. TAX FILE MEMORANDUM DATE: October 28, 2021 FROM: Marilyn C. Stephenson SUBJECT: Lana Johnson Today I talked to Lana Johnson with respect to her October 21 letter. She is interested in reducing her ownership interest in Stork Corporation in a stock redemption that would provide her long-term capital gain treatment. Stork Corporation would pay Lana $1,000 for each share of the corporation's stock, the estimated fair market value of the stock. Currently, Stork Corporation has 1,000 shares of stock outstanding owned by the following individuals: Lana Johnson, 400 shares; Lori Jones (your mother), 200 shares; and Leo Jones (your brother), 400 shares. Lana paid $200 per share for the stock eight years ago. She has asked us to determine the minimum number of shares she would have to redeem in order to obtain favorable long-term capital gain treatment and the overall tax consequences of such a redemption to both her and Stork Corporation. At…

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