John Owns 70% of the May Corporation Stock and 60

question 56

Multiple Choice

John owns 70% of the May Corporation stock and 60% of the June Corporation stock. John sells one- half of his interest in May Corporation to June Corporation for $45,000. The E&P accounts of May and June are $25,000 and $35,000, respectively. The result would be that

• A) John has sold his stock and reports a capital gain or loss.
• B) the sale is recast as a dividend paid to John, first by June and then by May.
• C) John has sold his stock and reports a capital gain but no loss.
• D) the transaction is treated as a contribution to May's capital and a redemption of June stock.

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