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

question 105

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 20 shares from Jones at a redemption price of $400 per share.No stock is redeemed from Smith.This is not a redemption to pay death taxes,and it is not a partial liquidation.What is the tax impact on Jones?

• A)capital gain of $6,000
• B)capital gain of $8,000
• C)dividend income of $6,000
• D)dividend income of $8,000

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