Ashley, the Sole Shareholder of Hawk Corporation, Has a Stock

question 22

Essay

Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year. On July 1, she sells all of her stock to Matt for $1 million. On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000. Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1. How are the distributions taxed to Ashley and Matt? What is Ashley's recognized gain on the sale to Matt?

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Definitions:

BRCA1 Gene

A gene that produces a protein playing a key role in repairing damaged DNA; mutations in BRCA1 can significantly increase the risk of breast and ovarian cancer.

Variant

An individual or group that exhibits differences in physical traits, behavior, or genetic composition from the typical or expected form.

Tumor-Suppressor Gene

A tumor-suppressor gene is a gene that suppresses cell growth and proliferation. Many tumor-suppressor genes are transcription factors activated by stress or DNA damage that arrest mitosis until DNA can be repaired. Mutations interfering with their expression can lead to excessive proliferation and cancer.

Oncogene

An oncogene is a normal gene whose function, when altered by mutation, has the potential to cause cancer.