Question

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 165 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 83 of her shares for $1,660 per share on December 31, 20X3. Pam's income tax basis in each share is $700. Comet has total E&P of $330,000. What are the tax consequences to Pam because of the stock redemption?

Answer 1

Answer: The answer is given below

Explanation:

The following can be gotten from the question

The redemption value of the share = $1660

Less: tax basis = $700

Capital gain: $1660 - $700 = $960

Number of shares that'll b redeemed = 83 shares

Therefore, the capital gain and the tax basis in each of the remaining shares of 700 will be:

= $960 × 83

= $79680