Bart, a 50% Owner of Atlas Corporation's Common Stock, Receives

question 8

Essay

Bart, a 50% owner of Atlas Corporation's common stock, receives a distribution of a new class of Atlas preferred stock having a $40,000 FMV. Bart's basis in the Atlas common stock is $30,000. Its FMV is $80,000 on the distribution date. One year later, the corporation redeems the preferred stock for $75,000. At the time the stock was issued, the corporation's current and accumulated E&P was $80,000. At the end of the year of redemption, the current and accumulated E&P is $25,000. No other distributions out of E&P were made in the year of redemption. What are the tax consequences of the transaction?

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Definitions:

Extraction Cost

The expenses associated with the removal of resources or raw materials from the earth, such as mining, drilling, or quarrying.

Quantity of Gold Bars

The quantity of gold bars represents the physical amount of gold, measured in bars, that an entity possesses or trades.

User Cost

The cost of using a good or service, including the cost of foregone opportunities.

Nonrenewable Resource

A natural resource that cannot be replenished at a rate to match its consumption, such as fossil fuels or minerals.