Question

Abner and Barbara are equal co-owners of Abba Corp., a C-Corporation and both shareholders have 500 shares and a basis in their shares of $100,000. Abba corp. has $0 in current E&P and $100,000 of accumulated E&P. Please analyze each of the scenarios below (noting that the facts in each of the following scenarios are independent form one another).

2) What are the tax consequences to Abner and to Abba if Abba redeems all of Abner’s stock in exchange for $250,000?

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Answer 1

In the given question abner and brabara equal shareholder of the abba corporation and abba corporation reedming the shareof abner $ 250000. Tax consequence on The redemption of this shares is as

Abba corp. Has no current E&P but corp. has accumulated E&P &100000 and share reedming $250000 corporation will pay the tax on the difference amount which is after deducting the amount received from share holder at the time purchase the share of the corporation ($250000-$100000) =$150000 on this amount corporation will pay tax and abner will not pay any tax responsibility.