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Tax Consequences and Stock Redemption

I am completely lost with the following problem. My text does a very poor job explaining this. Please thoroughly explain.

Falzone Compay has two shareholders, Rita and Sal Corporation. Rita acquired her 300 shares in 2002 for $30,000 and Sal Corporation acquired its 200 shares in 1998 for $15,000. On August 2, 2012, Falzone Company sold one of its businesses that it had held since 1998. Due to this sale, Falzone Company redeemed 50 shares from each shareholder in exchange for $20,000 each. Falzone's E & P at the time of the redemption was $250,000. What are the tax consequences of this transaction to Rita and Sal Corporation?

Solution Preview

Okay - Rita acquired her shares for $30,000 and the Corp. acquired its shares for 15,000. At a later date, the corp. sold a business that it had held, and subsequently, redeemed 50 shares from each shareholder in exchange for 20,000 each. The corp. E&P ...

Solution Summary

This solution explains the tax consequences to Rita and Sal Corporation based on the stock transactions from Falzone Company. The consequence to all parties and the remaining basis is explained. References are also given for further student expansion.

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