Question

27. Carrie retired last week and received a lump sum distribution of her employer's stock from the company's stock bonus plan. The value of the shares at the time of contribution varied. The 1st contribution was 2,500 shares at $10 per share. The 2nd consisted of 2,500 shares at $13 per share, and the last 2,500 shares were valued at $15 per share. All stock was contributed by the emplover, and the current value of the stock on the date of her retirement is $22 per share. Because she is only 63 years old today, she wants to wait to sell the shares until she is 66. How much of the lump-sum distribution should Carrie report on her income tax return in the year of her retirement? A. Carrie has NUA of $70,000 in the stock and must report $95,000 as ordinary income. B. Carrie must report $95,000 of ordinary income and $70,000 of capital gain. C. Carrie has held the stock long term and must report $165,000 in capital gains. D. Carrie has no basis in the shares and must report $165,000 in ordinary income.

Answer 1

Given: Carrie received stock from bonus plan worth of 1) 2500*10 = 25000 2) 2500*13 = 32500 and 3) 2500* 15 = 37500. Total shares of 7500 worth Rs 90000.

As carrie received shares as a part of bonus that means she didn't pay for bonus received.

Rule: if a person holds bonus share for more than 12 months than total of value at time of sale will be taxed as capital gain.

Cost of shares: 0

Holding period: 12 months.

Sale value: 22*7500= $165000.00

Hence total income of $165000.00 will be taxed as capital gain.

Option C is correct answer