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

question 1073

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 5 shares from Smith at a redemption price of $400 per share. No stock is redeemed from Jones. This is not a redemption to pay death taxes, and it is not a partial liquidation. What is the tax impact on Smith?

• A) $1,500 capital gain
• B) $1,500 dividend
• C) $2,000 capital gain
• D) $2,000 dividend

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Definitions:

Industry

The economic activity concerned with the processing of raw materials and manufacture of goods in factories.

Great Difficulty

A situation that is extremely challenging or hard to overcome.

Empathy

The capacity to grasp and empathize with someone else's emotions as if you are in their position.

Sharing

The act of giving a portion of what one has to another person or group, often as a social, cooperative behavior.