Swallow, Inc

question 112

Essay

Swallow, Inc., is going to make a distribution of $700,000 to shareholder Marjean who is in the 35% tax bracket.
a. Determine the tax liability to Marjean if the form of the distribution is a dividend.
b. Determine the tax liability to Marjean if the form of the distribution is a stock redemption.
Assume Marjean's adjusted basis for the stock redeemed is $200,000 and that she has owned the stock for five years.

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Definitions:

Artisan's Lien

A legal claim allowing a worker or service provider to retain possession of a client's property until payment for services rendered on that property is received.

Involuntarily

Occurring without the person's willing agreement or consent.

Possession

Possession refers to the act of having or holding property in one's power or control, whether owned or not.

Financing Statement

A document filed to give public notice to third parties of a secured party's interest in the collateral provided by a debtor.