Devon owns 40% of the Agate Company for which his basis is $100,000. He sells on

Question

Devon owns 40% of the Agate Company for which his basis is $100,000. He sells one-half of his ownership interest to Bernice for $80,000. Which of the following statements is correct?

a.If Agate is an S corporation, Devon has a recognized gain of $30,000, some of which may be capital and some of which may be ordinary income.

b.If Agate is a partnership, Devon has a recognized capital gain of $30,000.

c.If Agate is a C corporation, Devon has a recognized capital gain of $30,000.

d.Only "If Agate is a C corporation, Devon has a recognized capital gain of $30,000" and "If Agate is a partnership, Devon has a recognized capital gain of $30,000" are correct.

e."If Agate is an S corporation, Devon has a recognized gain of $30,000, some of which may be capital and some of which may be ordinary income", "If Agate is a C corporation, Devon has a recognized capital gain of $30,000", and "If Agate is a partnership, Devon has a recognized capital gain of $30,000" are correct.

Explanation / Answer

c.If Agate is a C corporation, Devon has a recognized capital gain of $30,000.

In choice a., Devon has a recognized capital gain of $30,000 . In choice b., Devon's recognized gain of $30,000 may be classified as a capital gain under § 741 . However, if the partnership has unrealized receivables or substantially appreciated inventory, some or all of the $30,000 recognized gain may be classified as ordinary under § 751.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

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