Jen, the Sole Shareholder of Mahogany Corporation, Sold Her Stock

question 132

Essay

Jen, the sole shareholder of Mahogany Corporation, sold her stock to Jason on July 1 for $90,000. Jen's stock basis at the beginning of the year was $60,000. Mahogany made a $30,000 cash distribution to Jen immediately before the sale, while Jason received a $60,000 cash distribution from Mahogany on November 1. As of the beginning of the current year, Mahogany had $16,000 in accumulated E & P, while current E & P (before distributions) is $30,000. What are the tax consequences of these transactions to Jen and Jason?

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Definitions:

Prodrome

An early symptom or set of symptoms that might indicate the start of a disease before specific symptoms occur.

Convalescence

The period of recovery and rest following illness, injury, or medical treatment.

Insect Vector

A term referring to insects that transmit pathogens from one host to another, causing diseases in humans and animals.

Malaria

A life-threatening disease transmitted by mosquitoes, caused by Plasmodium parasites, characterized by fever, chills, and flu-like symptoms.