Question

Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100...

Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock in the company on December 31, 20X3. Viking paid Sven $2,000 per share. His income tax basis in each share is $1,000. Viking has total E&P of $500,000. What are the tax consequences to Sven because of the stock redemption?

  • $75,000 capital gain and a tax basis in each of his remaining shares of $1,000.

  • $75,000 capital gain and a tax basis in each of his remaining shares of $2,000.

  • $150,000 dividend and a tax basis in each of his remaining shares of $4,000.

  • $150,000 dividend and a tax basis in each of his remaining shares of $1,000.

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Answer #1
Viking company is 100% owned by the Sven after reduction of the stock of his wife. Therefore, the redemption of the share is considered as a dividend.
Amount paid per share $        2,000
Multiply: Number of share redeemed                  75
Amount of dividend $   150,000
Sven Stock basis (1000*100) $   100,000
Divided by: Remaining share (100 shares -75 share redeemed)                  25
Tax basis in each of his remaining shares $        4,000
Correct Option is C.
$150,000 dividend and a tax basis in each of his remaining shares of $4,000.
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