Half Moon Corporation Made a Distribution of $855,000 to Arnold

question 47

Essay

Half Moon Corporation made a distribution of $855,000 to Arnold Swartz in partial liquidation of the company on December 31, 20X3. Arnold owns 100 percent of Half Moon Corporation (1,900 shares). The distribution was in exchange for 50 percent of Arnold's stock in the company (950 shares). At the time of the distribution, the shares had a fair market value of $900 per share. Arnold's income tax basis in the shares was $450 per share. Half Moon had total E&P of $3,900,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Arnold as a result of the partial liquidation?

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Definitions:

Higher Wage

A wage rate that is above the average or minimum level commonly paid for similar work.

Wage Discrimination

Unequal pay for workers who perform similar jobs or duties, often based on gender, race, age, or sexual orientation.

Marginal Productivity

The increase in output produced by adding one more unit of a specific input, keeping all other inputs constant.

Market Failure

A situation where the allocation of goods and services by a free market is not efficient, often due to externalities, monopolies, information asymmetries, or public goods.