Aggie Corporation made a distribution of $571,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100 shares (100 percent) of Aggie Corporation. The distribution was in exchange for 50 percent of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $150 per share. Rusty's tax basis in the shares was $37 per share. Aggie had total E&P of $8,275,000 at the time of the distribution. Problem 18-67 Part-a (Algo) a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty as a result of the partial liquidation?
Aggie Corporation made a distribution of $571,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100 shares (100 percent) of Aggie Corporation. The distribution was in exchange for 50 percent of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $150 per share. Rusty's tax basis in the shares was $37 per share. Aggie had total E&P of $8,275,000 at the time of the distribution. Problem 18-67 Part-a (Algo) a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty as a result of the partial liquidation?
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 15CE
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Required information
Problem 18-67 (LO 18-5) (Algo)
(The following information applies to the questions displayed below.)
Aggie Corporation made a distribution of $571,000 to Rusty Cedar in partial liquidation of the company on December 31 of
this year. Rusty, an individual, owns 100 shares (100 percent) of Aggie Corporation. The distribution was in exchange for
50 percent of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $150 per
share. Rusty's tax basis in the shares was $37 per share. Aggie had total E&P of $8,275,000 at the time of the distribution.
Problem 18-67 Part-a (Algo)
a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty as a result of the partial
liquidation?
Capital gain
per share
Transcribed Image Text:Required information
Problem 18-67 (LO 18-5) (Algo)
[The following information applies to the questions displayed below.}
Aggie Corporation made a distribution of $571,000 to Rusty Cedar in partial liquidation of the company on December 31 of
this year. Rusty, an individual, owns 100 shares (100 percent) of Aggie Corporation. The distribution was in exchange for
50 percent of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $150 per
share. Rusty's tax basis in the shares was $37 per share. Aggie had total E&P of $8,275,000 at the time of the distribution.
Problem 18-67 Part-b (Algo)
b. Assuming Aggie made no other distributions to Rusty during the year, by what amount does Aggie reduce its total E&P as a result of
the partial liquidation?
Reduction in E&P
Expert Solution
Provision
Capital Gain per share = FMV of Aggie Corporation at the time of Distribution - Tax Basis in those shares
Reduction in E&P is lower of
- Amount distributed
- Proportionate amount of E&P w.r.t redemption
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