Gibson Corporation redeems some of its stock from two of its shareholders on the same date. Felix and his son Shane own 54 and 16 shares, respectively, of the 95 shares outstanding before the redemption. The remaining 25 shares are owned by unrelated individuals. Gibson redeems for $54,000 of Felix's shares having a $24,000 basis. All of Shane's shares, having a $42,000 basis, are redeemed for $112,000. Shane files an agreement with the IRS that he will acquire no interest in the corporation other than as a creditor for 10 years. Gibson has current and accumulated E&P of $220,000.
Read the requirements.
Requirement a. What are the tax consequences of the redemption to Felix and Shane?
Shane recognizes
Felix
because his redemption
Shane recognizes a capital gain, a capital loss, an ordinary gain, an ordinary loss, no gain or loss on the redemption. Which one?
Felix does not recognize the sale price, recognizes capital gain, recognizes dividend income. Which one?
Requirement b. What are the tax consequences of the redemption to Shane if he does not file the agreement or if he violates the agreement during the 10-year period?
If Shane does not file an agreement with the IRS to waive the family attribution rules or if he violates the agreement during the 10-year post-redemption period the distribution will be
Shane's basis of $42,000 will be
Gibson
elix and his son
shares are owned by unrelated individuals.Gibson redeems for $54,000 9 of Felix's shares having a $24,000 basis.All of Shane's shares,having a $42,000 basis,are redeemed for $112,000.Shane files an agreement with the IRs that he will acquire no interest in the corporation other than as a creditor for 10 years. Gibson has current and accumulated E&Pof $220,000 Read the requirements.
Requirement a.What are the tax consequences of the redemption to Felix and Shane?
Shane recognizes
Felix
because his redemption
Shane recognizes a capital gain, a capital loss, an ordinary gain, an ordinary loss, no gain or loss on the redemption.Which one?
Felix does not recognize the sale price, recognizes capital gain, recognizes dividend income. Which one? Requirement b.What are the tax consequences of the redemption to Shane if he does not file the agreement or if he violates the agreement during the 10-year period?
If shane does not file an agreement with the IRs to waive the family attribution rules or if he violates the agreement during the 10-year post-redemption period the distribution will be Shane's basis of $42,000 will be
Shane own 54 and 16 shares,respectively,of the 95 shares outstanding before hares are owned by unrelated individuals.Gibson redeems for $54,000 9 of F
are owned by unrelatod individuals.Gibson redoems for $54,000 9 of Feli
a return of basis up to $42,000
suspended capitallos
taxed as a $112,000 dividend
reallocated to Gibson Corporation
as ordinar
highes
reallocated to Felix.
taxed on
taxod asa dividen