Crescent Corporation Is Owned Equally by George and His Daughter

question 59

Essay

Crescent Corporation is owned equally by George and his daughter Olympia, each of whom own 100 shares in the company. George wants to retire from the company, and it was decided that the company will redeem all 100 of his shares for $10,000 per share on December 31, 20X3. George's income tax basis in each share is $2,000. Crescent has current E&P of $1,000,000 and accumulated E&P of $5,000,000. What must George do to ensure that the redemption will be treated as an exchange?

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Definitions:

Consideration

Something of value promised to another when making a contract that compels them to enter into the agreement; an essential element in the formation of a legally binding contract.

Promise

A declaration or assurance that one will do something or that a particular thing will happen, often forming the basis of a contract.

Requirements Contract

A contract in which one party agrees to supply as much of a product or service as the other party needs.

Composition Agreement

An arrangement where creditors agree to accept less than the full amount owed to them as full satisfaction of their claims.