C and D organized Z Corporation 10 years ago, each distributing $40,000 and each
ID: 2452744 • Letter: C
Question
C and D organized Z Corporation 10 years ago, each distributing $40,000 and each receiving 400 shares of common stock. Five years ago, in June, Z declared a one dividend payable in pure preferred with a $400 fair market value. The value of the common stock after the distribution was $1,600 per share. In that year, fiver years ago, Z had accumulated E&P of $52,000 and current of $12,000. In the current year, Z has accumulted E&P of $112,000 and current E&P of $8,000. In December of the current year, C sells all of his preferred stock to E for $36,000. In June of that same year, C had previously sold all of his common stock to F for $200,000. E is C's son.
Assumption: same fact as above except that shortly after receiving the prefered stock, C contributed to a charity and the charity shortly thereafter sells it to Z Corporation for $36,000
a C has a charitable contribution of $36,00
b C's charitable contribution is reduced by the ordinary income component of $32,000 resulting in a charitable contribution of $4,000
c The IRS might urgue that there is no charitable contribution but rather a straight sale to the corporation Z by C resulting in $36,000 of ordinary income.
d B and C
e None of the above
Which is the correct answer and why?
Explanation / Answer
c The IRS might urgue that there is no charitable contribution but rather a straight sale to the corporation Z by C resulting in $36,000 of ordinary income.
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