Five Years Ago, Eleanor Transferred Property She Had Used in Her

question 85

Multiple Choice

Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $100,000 and a fair market value of $270,000 on the date of the transfer.In the current year, Blue Corporation (E & P of $800,000) redeems 250 shares from Eleanor for $220,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption, Eleanor will have a:

• A)$195,000 capital gain.
• B)$220,000 capital gain.
• C)$195,000 dividend.
• D)$220,000 dividend.
• E)None of the above.

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Definitions:

Taxes

Compulsory financial charges or levies imposed by a government on individuals or entities to fund public expenditures.

Average Tax Rate

The average tax rate is the ratio of the total amount of taxes paid to the total tax base (taxable income or spending), essentially reflecting the percentage of income that goes to taxes.

Total Taxes

refer to the comprehensive amount of taxes (federal, state, local) levied on individuals, corporations, and other entities within a fiscal period.

Taxable Income

The portion of income subject to taxation after all deductions and exemptions have been applied according to tax laws.