Question

Problem 20-23 (LO. 1,4) Dove Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. The shares are owned as follows: Julia, 600 shares; Maxine (Julia's sister), 300 shares; and Janine (Julia's daughter), 100 shares. Dove Corporation owns land (basis of $300,000, fair market value of $260,000) that it purchased as an investment seven years ago. Dove distributes the land to Julia in exchange for all of her shares in the corporation. Julia had a basis of $275,000 in the shares. What are the tax consequences for both Dove Corporation and Julia? a. If the distribution is a qualifying stock redemption: Dove Corporation has a nonrecognized lossof Julia has a nonrecognized loss o Feedback Check My Work There are several tax issues surrounding the redeeming corporation that must be addressed, including the recognition of gain or loss on property distributed pursuant to a redemption, the effect on a corporation's E & P from a distribution that is a qualifying stock redemption, and the deductibility of expenditures incurred in connection with a redemption b. If the distribution is a liquidating distribution: Dove Corporation has a nonrecognized lossof basis in the land is . Julia has a recognized loss of Her Feedback Check My Work Partially correct

Answer 1

Answer

a. If the distribution is a qualifying stock redemption:

i. Dove Corporation has a nonrecognized loss of $40,000 (260,000 - 300,000).

ii. Julia has a nonrecognized loss of $15,000 (260,000 - 275,000).

b. If the distribution is a liquidating distribution:

i. Dove Corporation has a nonrecognized loss of $40,000.

ii. Julia has a recognized loss of $15,000. Her basis in the land is $260,000