MrA and Ms

question 6

Multiple Choice

Mr.A and Ms.B own all of the stock of Salt which in turn owns all of the stock of Pepper.Salt acquired Pepper 15 years ago.Both corporations conduct active businesses and have substantial E&P.During the year, Salt distributed the stock of Pepper to A and B.Both A and B each received 100 shares of Pepper stock worth $50,000.In addition, they both received a Pepper bond with a face value of $10,000 and worth $9,000.Due to the distribution, A and B will each report (assuming the transaction meets the conditions of § 355)

• A)No gain or loss
• B)$60,000 dividend
• C)$59,000 dividend
• D)$10,000 dividend
• E)$9,000 dividend

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Definitions:

Pension Plan

A retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit. The fund is invested on the employee's behalf, and the earnings on the investments generate income to the worker upon retirement.

Post Retirement

The phase of life after an individual has ended their professional career, often focusing on leisure, personal interests, and potentially part-time work.

Social Security Benefits

Social Security Benefits are payments made to qualified retirees and disabled people, and to their spouses, children, and survivors.

Withholdings

The portion of an employee's earnings withheld by the employer for the purpose of paying taxes or other deductions.