Bailey is one of four equal unrelated shareholders of Checker Corporation. Baile

ID: 2372814 • Letter: B

Question

Bailey is one of four equal unrelated shareholders of Checker Corporation. Bailey has held Checker stock for four years and has a basis in her stock of $40,000. Checker has $280,000 of current and accumulated E&P and distributies $100,000 to Bailey.

a. What are the tax consequences to Checker and to Bailey if Bailey is an individual and the distribution is treated as a dividend?

b. In part a, what would be the tax consequences if Bailey were a corporation?

c. What are the tax consquences to checker and to Bailey (an individual) if Bailey surrenders all her stock in a redemption qualifying for sale treatment?

d. In part c, what would be the tax consequences if Bailey were a corporation?

e. Which treatment would Bailey prefer if Baily were an individual? Which treatment would Baily Corporation prefer?