Lopez Corporation (E & P of $1 million) has 2,000 shares of common stock outstanding owned...

Lopez Corporation (E & P of $1 million) has 2,000 shares of common stock outstanding owned by unrelated parties as follows: Kaylee, 1,000 shares, and Damek, 1,000 shares. Both Kaylee and Damek paid $150 per share for the Lopez stock 12 years ago. In May of the current year, Lopez distributes land held as an investment (basis of $180,000, fair market value of $390,000) to Kaylee in redemption of 350 of her shares. a. What are the tax results to Kaylee on the redemption of her Lopez stock? b. What are the tax results to Lopez Corporation on the distribution of the land? ANSWER:

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Expert Solution


In The Hand of Kaylee
Particulars	$
Amount realized	390,000.00
Less: Stock aquisiion cost (350 shares x $150)	52,500.00
Long-Term Capital Gain	337,500.00

Notes:
1. Kaylee will have a basis of $390,000 in the Land
2. Under § 302(b)(2), this distribution to Kaylee fall under disproportionate redemption

In The Hand of Lopez Corporation
Particulars	$
Amount realized	390,000.00
Less: Basis	180,000.00
Capital Gain	210,000.00

Notes:
1. In case of non-liquidating distributions, gains have to be recognized.
2. Since E&P is $1 million and percentage of redumbtion is 17.5% (350 Shares/2000 Shares), E&P is reduced by $175,000. (That is, $1,000,000 x 17.5%)

ekkarill92 answered 1 year ago

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