Susan Owns 150 of the 200 Outstanding Shares of Parent

Essay

Susan owns 150 of the 200 outstanding shares of Parent Corporation's stock. Parent owns 160 of the 200 outstanding shares of Subsidiary Corporation's stock. Susan sells 50 shares of her Parent stock to Subsidiary for $40,000. Susan's basis in her Parent shares is $15,000 ($100 per share). Subsidiary Corporation and Parent Corporation have E&P of $60,000 and $25,000, respectively, at the end of the year in which the redemption occurs.
a)What is the amount and character of Susan's gain or loss on the sale?
b)What is Susan's basis in her remaining shares of Parent stock?
c)How does the sale affect the E&P of Parent and Subsidiary Corporations?
d)What basis does Subsidiary Corporation take in the Parent shares it purchases?
e)How would your answer to Part (a)change if Susan instead sells 100 of her Parent shares to Subsidiary Corporation for $80,000?