Question

Since 2008, Ben has owned all 100 outstanding shares of N and M Corporation’s stock. Ben’s basis for the stock is $50,000. In 2019, N and M have earnings and profits of $100,000. The corporation redeemed 25 shares of Ben’s stock for $75,000 in 2019. How will Ben report this?
A. $75,000 dividend.B. $75,000 gain.C. $50,000 gain.D. None of the above

Answer 1

Answer:

A. $75,000 dividend

Explanation:

This is not  a capital gain as it do not come from the change in the value of the previously owned shares this are new shares.

The shares which N and M provide in favor to Ben are an stock dividend thus, the tax treatment should be of dividends as well.