Ethel, Hannah, and Samuel, Unrelated Individuals, Own the Stock in Broadbill

question 142

Multiple Choice

Ethel, Hannah, and Samuel, unrelated individuals, own the stock in Broadbill Corporation (E & P of $700,000) as follows: Ethel, 300 shares? Hannah, 300 shares? and Samuel, 400 shares. Broadbill redeems 200 of Samuel's shares (basis of $175,000) for $250,000. If Samuel's stock is a capital asset and has been held for over three years, Samuel has:

• A) A long-term capital gain of $75,000.
• B) A short-term capital gain of $75,000.
• C) Ordinary income of $250,000.
• D) Ordinary income of $75,000.
• E) None of the above.

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Definitions:

Buyer Bears

This concept refers to the condition in which the purchaser is responsible for any additional expenses that arise after a purchase agreement, such as repair or maintenance costs.

Price Wedge

The difference between the price paid by buyers and the price received by sellers, often resulting from taxes, subsidies, or other interventions in the market.

FICA

Stands for Federal Insurance Contributions Act, specific U.S. legislation that funds Social Security and Medicare through payroll taxes.

Seller Bears

Refers to situations where the seller is responsible for any additional costs or risks associated with a transaction.