Bart, a 50% Owner of Atlas Corporation's Common Stock, Receives

question 8

Essay

Bart, a 50% owner of Atlas Corporation's common stock, receives a distribution of a new class of Atlas preferred stock having a $40,000 FMV. Bart's basis in the Atlas common stock is $30,000. Its FMV is $80,000 on the distribution date. One year later, the corporation redeems the preferred stock for $75,000. At the time the stock was issued, the corporation's current and accumulated E&P was $80,000. At the end of the year of redemption, the current and accumulated E&P is $25,000. No other distributions out of E&P were made in the year of redemption. What are the tax consequences of the transaction?

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Definitions:

Opportunity Cost

The value of the best alternative forgone where a choice needs to be made between several mutually exclusive alternatives.

Aggregate Income

The total amount of income earned by all individuals or entities within an economy.

World Economy

The global network of economic activities, trade, and production that transcends national borders, involving various economies of the world.

Private Sector

The part of the economy that is run by individuals and companies for profit and is not state controlled.