USAco, a domestic corporation, has owned 100% of the stock of FORco, a foreign c
ID: 2424599 • Letter: U
Question
USAco, a domestic corporation, has owned 100% of the stock of FORco, a foreign corporation, since FORco was organized 10 years ago. USAco's basis in the stock is $100,000. FORco has earnings and profits of $500,000. USAco sells FORcos's stock to an unrelated party for $1,000,000. The tax effect of the transaction is:
(a) USAco has a dividend of $900,000
(b) USAco has capital gain of $900,000
(c) USAco does not have to report any income from the transaction
(d) USAco has a capital gain of $400,000 and a dividend of $500,000
Explanation / Answer
USA Co.sells FOR Cos stock to an unrelated party fo $1,000,000.Tax effect of this transaction will be (d).
USAcp has a capital gain of 4400,000 and a dividend of $500,000
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