Lou, the sole owner of Water Corporation (a C Corp) owns 1,000 shares, which he

Question

Lou, the sole owner of Water Corporation (a C Corp) owns 1,000 shares, which he purchased in Year 1. Lou’s basis in Water’s stock is $40,000. During Year 5, Water, which has earnings and profits of $80,000, redeems 900 of Lou’s shares for $60,000. What are the amount and the character of the income or gain Lou must report as a result of the redemption?

$24,000 of capital gain.

$60,000 of dividend income.

$60,000 of capital gain.

$24,000 of dividend.

$24,000 of capital gain.

$60,000 of dividend income.

$60,000 of capital gain.

$24,000 of dividend.

Explanation / Answer

Up to the amount of Earning and profit available ,earnings distributed is treated as dividend income and above all will be treated as capital gain

so $ 60000 is treated as dividend income ain hands of Lou .

correct option is "b"

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.