To Carry Out a Qualifying Stock Redemption, Turaco Corporation (E

question 63

Multiple Choice

To carry out a qualifying stock redemption, Turaco Corporation (E & P of $800,000) transfers land held for investment purposes to Aida, a shareholder. The land had a basis of $250,000, a fair market value of $400,000, and is subject to a $300,000 liability. Aida has a basis of $70,000 in the shares redeemed. Which of the following is a correct statement regarding the tax consequences of this redemption?

• A) Aida will have $400,000 of dividend income.
• B) Aida will have a $100,000 basis in the land.
• C) Turaco Corporation will recognize a gain of $50,000.
• D) Aida will recognize a gain of $30,000.
• E) None of the above.

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Definitions:

80% Test

A requirement or threshold in various contexts where at least 80% of some criteria must be met, but in finance, it often relates to rules around shareholder voting rights or dividend distribution policies.

Recognize Gain

To report and potentially pay taxes on profits from the sale of an asset when the selling price exceeds the asset's adjusted basis.

Stockholder

An individual or entity that owns shares in a corporation, thus holding a portion of the company's ownership.

Dividends Received Deduction

A tax deduction available to corporations that receive dividends from related entities, aimed at mitigating the effects of multiple layers of taxation.