Problems (80 Points- You must show your calculations to receive full credit) 11,

Question

Problems (80 Points- You must show your calculations to receive full credit) 11, Tanya is in the 15% tax bracket. She acquired 1,000 shares of stock in Swan Corpora seven years ago for $100 a share. In the current year, Swan Corporation (E & P of $1.2 m redeems all of her shares for $160,000. What are the income tax consequences to Tanya i a. The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets? b. The redemption does not qualify for sale or exchange treatment?

Explanation / Answer

Tanya The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets? If the redemption qualifies for sale or exchange treatment, Tanya will have a long-term capital gain of $60,000 [$160,000 (amount realized) – $100,000 (stock basis)]. Her income tax liability on the $60,000 gain will be $9,000 ($60,000 ´ 15%). The redemption does not qualify for sale or exchange treatment? If the redemption distribution of $160,000 does not qualify as a sale or exchange, it will be treated as dividend income and her tax liability will be $24,000 ($160,000 ´ 15%). (The entire $160,000 will be subject to tax at the 15% rate; Tanya will have no basis offset.)

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