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book McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick cover

McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Edition 3ISBN: 9780077924522
book McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick cover

McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Edition 3ISBN: 9780077924522
Exercise 31
{ research } Assume in problem 53 that Betty and Barney are not getting along and have separated due to marital discord (although they are not legally separated). In fact, they cannot even stand to talk to each other anymore and communicate only through their accountant. Betty wants to argue that she should not be treated as owning any of Barney's stock in Bedrock because of their hostility towards each other. Can family hostility be used as an argument to void the family attribution rules Consult Rev. Rul. 80-26, 1980-1 C.B. 66, Robin Haft Trust v. Comm. , 510 F.2d 43 (CA-1 1975), Metzger Trust v. Comm. , 693 F.2d 459 (CA-5 1982, and Cerone v. Comm. , 87 TC 1 (1986).
Problem 53
Bedrock Inc. is owned equally by Barney Rubble and his wife Betty, each of whom hold 1,000 shares in the company. Betty wants to reduce her ownership in the company, and it was decided that the company will redeem 500 of her shares for $25,000 per share on December 31. Betty's income tax basis in each share is $5,000. Bedrock has current E P of $10,000,000 and accumulated E P of $50,000,000.
a. What is the amount and character (capital gain or dividend) recognized by Betty as a result of the stock redemption, assuming only the "substantially disproportionate with respect to the shareholder" test is applied
b. Given your answer to question a, what is Betty's income tax basis in the remaining 500 shares she owns in the company
c. Assuming the company did not make any dividend distributions during 2010, by what amount does Bedrock reduce its E P as a result of the redemption
d. Can Betty argue that the redemption is "not essentially equivalent to a dividend" and should be treated as an exchange
Explanation
Verified
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Probably not. The IRS held that family h...

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McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick
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