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Swallow, Inc

question 112

Essay

Swallow, Inc., is going to make a distribution of $700,000 to shareholder Marjean who is in the 35% tax bracket.
a. Determine the tax liability to Marjean if the form of the distribution is a dividend.
b. Determine the tax liability to Marjean if the form of the distribution is a stock redemption.
Assume Marjean's adjusted basis for the stock redeemed is $200,000 and that she has owned the stock for five years.


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