Question

On January 1, Reed Richards was the sole shareholder of Fantastic Deal Corporation. His stock basis...

On January 1, Reed Richards was the sole shareholder of Fantastic Deal Corporation. His stock basis was $200,000. On June 30, Fantastic distributes property to him with a FMV of $100,000 and a basis of $120,000. On July 1, he sells all of his stock to Matt Murdock for $250,000. On January 1, Fantastic had accumulated E & P of $110,000 and during the year, current E & P of $90,000. On November 1, Fantastic makes a cash distribution to Matt of $100,000. How are the distributions taxed to Reed and Matt? What is Matt's stock basis at the end of the year?

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Answer #1

A. The Reed and Matt both holding Shares of Fantastic Deal Corporation for the half year each from jan1 to June 1 Reed is holding and after that matt so the profit earned by Fantastic Deal Corporation half taxed to reed and half to matt other than that reed has to pay capital gain on the sell of stock held by him in Fantastic Deal Corporation.

B. Matt Stock at the end of the year

= Stock price of Fantastic + Accumaleted E& P + Current Year E& P - Purchase Price-cash distribution to Matt

=$ 200,000 + $ 110,000 + $ 90,000 - $ 100,000

= $ 300,000

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