A Corporation Is Owned 70% by Jones and 30% by Smith.Jones

question 79

Multiple Choice

A corporation is owned 70% by Jones and 30% by Smith.Jones owns 70 shares with a cost of $100 each.Smith owns 30 shares with a cost of $100 per share.The company redeems 5 shares from Smith at a redemption price of $400 per share.No stock is redeemed from Jones.This is not a redemption to pay death taxes,and it is not a partial liquidation.What is the tax impact on Smith?

• A)$2,000 dividend
• B)$2,000 capital gain
• C)$1,500 dividend
• D)$1,500 capital gain

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Definitions:

Contributory Negligence

A legal doctrine under which a party can be found to be at fault for their own injury if they contributed to the cause of their harm, potentially limiting or eliminating their right to compensation.

Plaintiff

The party who initiates a lawsuit seeking legal remedy from another party, the defendant, for some injury or damage.

Damages

A financial recompense given by a court to an individual who has endured damages or injury because of another's illegal action or carelessness.

Defendant

An individual, company, or institution sued or accused in a court of law.