Multiple Choice
Comet Company is owned equally by Pat and his sister Pam,each of whom hold 100 shares in the company.Comet redeems 50 of Pam's shares on December 31,year 1,for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes.Comet has total E&P of $160,000 on December 31,year 1.What are the tax consequences to Comet as a result of the stock redemption?
A) No reduction in E&P as a result of the exchange.
B) A reduction of $50,000 in E&P as a result of the exchange.
C) A reduction of $40,000 in E&P as a result of the exchange.
D) A reduction of $80,000 in E&P as a result of the exchange.
Correct Answer:
Verified
Correct Answer:
Verified
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