Question 49. [LO4] Badger Corporation declared a stock dividend to all sharehold

49. [LO4] Badger Corporation declared a stock dividend to all shareholders of record on March 25of this year. Shareholders will receive one share of Badger stock for each ten shares of stock they already own. Madison Cheeseman owns 1,000 shares of Badger stock with a tax basis of $100 per share. The fair market value of the Badger stock was $110 per share on March 25 of this year.

a. What amount of taxable dividend income, if any, does Madison recognize this year?

b. What is Madison’s income tax basis in her new and existing stock in Badger Corporation, assuming the distribution is non-taxable?

c. How would you answer questions a and b if Madison was offered the choice between 1 share of stock in Badger for each 10 shares she owned or $100 cash for each 10 shares she owned in Badger?

50. [LO5] Wildcat Company is owned equally by Evan Stone and his sister Sara, each of whom held 1,000 shares in the company. Sara wants to reduce her ownership in the company, and it was decided that the company will redeem 500 of her shares for $25,000 per share on December 31 of this year. Sara’s income tax basis in each share is $5,000. Wildcat has current E&P of $10,000,000 and accumulated E&P of $50,000,000.

a. What is the amount and character (capital gain or dividend) recognized by Sara as a result of the stock redemption?

b. What is Sara’s income tax basis in the remaining 500 shares she owns in the company?

Sara’s income tax basis in the remaining shares remains $5,000 per share or $2,500,000 income tax basis in remaining 500 shares.

c. Assuming the company did not make any dividend distributions during this year, by what amount does Wildcat reduce its E&P as a result of the redemption?

51. [LO5] Flintstone Company is owned equally by Fred Stone and his sister Wilma, each of whom hold 1,000 shares in the company. Wilma wants to reduce her ownership in the company, and it was decided that the company will redeem 250 of her shares for $25,000 per share on December 31 of this year. Wilma’s income tax basis in each share is $5,000. Flintstone has current E&P of $10,000,000 and accumulated E&P of $50,000,000.

a. What is the amount and character (capital gain or dividend) recognized by Wilma as a result of the stock redemption, assuming only the “substantially disproportionate with respect to the shareholder” test is applied?

b. Given your answer to question a, what is Wilma’s income tax basis in the remaining 750 shares she owns in the company?

c. Assuming the company did not make any dividend distributions this year, by what amount does Flintstone reduce its E&P as a result of the redemption?

Flintstone reduces its E&P by $6,250,000, the amount of dividend income reported by Wilma.

d. What other argument might Wilma make to treat the redemption as an exchange?

52. [LO5] Acme Corporation has 1,000 shares outstanding. Joan and Bill are married, and they each own 20 shares of Acme. Joan’s daughter, Shirley also owns 20 shares of Acme. Joan is an equal partner with Jeri in the J&J partnership, and this partnership owns 60 shares of Acme. Jeri is not related to Joan or Bill. How many shares of Acme is Shirley deemed to own under the stock attribution rules?

53. [LO5] Bedrock, Inc. is owned equally by Barney Rubble and his wife Betty, each of whom held 1,000 shares in the company. Betty wants to reduce her ownership in the company, and it was decided that the company will redeem 500 of her shares for $25,000 per share on December 31 of this year. Betty’s income tax basis in each share is $5,000. Bedrock has current E&P of $10,000,000 and accumulated E&P of $50,000,000.

a. What is the amount and character (capital gain or dividend) recognized by Betty as a result of the stock redemption, assuming only the “substantially disproportionate with respect to the shareholder” test is applied?

b. Given your answer to question a, what is Betty’s income tax basis in the remaining 500 shares she owns in the company?

c. Assuming the company did not make any dividend distributions this year, by what amount does Bedrock reduce its E&P as a result of the redemption?

d. Can Betty argue that the redemption is “not essentially equivalent to a dividend” and should be treated as an exchange?

54. [LO5] {research} Assume in problem 53 that Betty and Barney are not getting along and have separated due to marital discord (although they are not legally separated). In fact, they cannot even stand to talk to each other anymore and communicate only through their accountant. Betty wants to argue that she should not be treated as owning any of Barney’s stock in Bedrock because of their hostility towards each other. Can family hostility be used as an argument to void the family attribution rules? Consult Rev. Rul. 80-26, 1980-1 C.B. 66, Robin Haft Trust v. Comm., 510 F.2d 43 (CA-1 1975), Metzger Trust v. Comm., 693 F.2d 459 (CA-5 1982, and Cerone v. Comm., 87 TC 1 (1986).

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.