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Dividend Income with Respect to Redemption

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27. Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for
1,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $550,000 on the date of the transfer. In the current year, Blue Corporation (E & P of $1 million) redeems 100 shares from Eleanor for $290,000 in a transaction that does not qualify for sale or exchange treatment. With respect to the redemption, Eleanor will have a:

a. $250,000 dividend.
b. $290,000 dividend.
c. $250,000 capital gain.
d. $290,000 capital gain.
e. None of the above.

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Solution Summary

The dividend income with respect to redemption for Eleanor transfer property is given.

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