. D, E and F each own one-third of the outstanding stock of R Corpora­tion (an S

Question

. D, E and F each own one-third of the outstanding stock of R Corpora­tion (an S corporation). During the current year, R will have $120,000 of net income from business operations. The net income is realized at a rate of $10,000 per month. Additionally, in January of this year R sold §1231 property and recognized a $60,000 loss.

(a) Assume D's basis in her R stock at the beginning of the year is $10,000. If D sells one-half of her stock to G midway through the year for $25,000, what will be the tax results to D and G?

(b) What difference would it make in (a), above, if D sold all of her stock to G for $50,000?

Explanation / Answer

Actually D's share in income and loss

1/3 of R income = $120,000 /3=$40,000

Loss=60,000 *1/3=$20,000

$40,000-20,000=$20,000(net income)

Basis =$5,000(10,000 / 2)

sell =$25,000

______________________________

profit $20,000

but 20,000 -$3,000(loss carry forward$20,000)=$17,000 is profit and D get 15% tax for long term capital profit

G does not have the tax because he/she is buyer.

_____________________________________________________________________________________

b)

Basis =$5,000(10,000 / 2)

sell =$50,000

______________________________

profit $45,000 -20,000(loss) =25,000 is profit

and D get 15% tax for long term capital profit

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