A Corporation Is Owned 70% by Jones and 30% by Smith.Jones

question 105

Multiple Choice

A corporation is owned 70% by Jones and 30% by Smith.Jones owns 70 shares with a cost of $100 each.Smith owns 30 shares with a cost of $100 per share.The company redeems 20 shares from Jones at a redemption price of $400 per share.No stock is redeemed from Smith.This is not a redemption to pay death taxes,and it is not a partial liquidation.What is the tax impact on Jones?

• A)capital gain of $6,000
• B)capital gain of $8,000
• C)dividend income of $6,000
• D)dividend income of $8,000

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Definitions:

Commissions

Fees paid to agents or salespeople for facilitating transactions or sales.

Constructive Trust

A legal remedy imposed by a court to rectify unjust enrichment or wrongful conduct, requiring the holder of property to transfer it to the rightful owner.

Accounting

The systematic recording, analyzing, summarizing, and reporting of financial transactions of a business or individual.

Authority to Manage

Refers to the power or right delegated to an individual or group to make decisions and oversee the administration of an organization, property, or legal entity.