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

Exercise 47

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding.The shares are owned as follows:
Thriller Corporation has current E P of $300,000 for 2011 and accumulated
E P at January 1, 2011, of $500,000.During 2011, the corporation made the following distributions to its shareholders:
03/31: Paid a dividend of $10 per share to each shareholder ($10,000 in total).06/30: Redeemed 200 shares of Joe's stock for $200,000.Joe's basis in the 200 shares redeemed was $100,000.09/30: Redeemed 60 shares of Vinnie's stock for $60,000.His basis in the 60 shares was $36,000.12/31: Paid a dividend of $10/share to each shareholder ($7,400 in total).Required:
a.Determine the tax status of each distribution made during 2011.( Hint: First, consider if the redemptions are treated as dividend distributions or exchanges.
b.Compute the corporation's accumulated E P at January 1, 2012.c.Joe is considering retirement and would like to have the corporation redeem all of his shares for $100,000 plus a 10-year note with a fair market value of $300,000.1.What must Joe do or consider if he wants to ensure that the redemption will be treated as an exchange?
2.Could Joe still act as a consultant to the company?
d.Thriller Corporation must pay attorney's fees of $5,000 to facilitate the stock redemptions.Is this fee deductible?