Question

As of January 1, 2019, the stock ownership of QRS Corp. was as follows:

                        Edward                                                15 Shares

                        Vicky (Edward's spouse)                    25 Shares

                        Daniel (Vicky’s father)                       35 Shares

                        Hal (Vicky’s brother)                          25 Shares

On December 31, 2019, QRS Corp. paid Edward $100,000 and he surrendered ten (10) shares of his stock. QRS Corp also paid Vicky $50,000 and she surrendered five (5) shares of her stock.

A. Immediately prior to the December 31 transaction, Hal’s total ownership interest in QRS Corp was equal to _____ percent, consisting of ___ shares owned directly and ___ shares owned indirectly.

B. Does the redemption of Edward’s ten (10) shares qualify for sale or exchange treatment? If so, why? If not, why not?

C.Does the redemption of Vicky’s five (5) shares qualify for sale or exchange treatment? If so, why? If not, why not?

Answer 1

Answers

A. Hal's total ownership interest in QRS Corp was equal to 85 %

• Consisting of 25 shares owned directly
• and 60 shares owned indirectly
  • 35 shares held by Hal's Father Daniel
  • 25 shares held by Hal's Brother Vicky
  • Please note shares held by Edward(Vicky's Spouse) is not considered her

B No redemption of Edward's Ten Shares doesn't qualify for Sale or Exchange treatment as these are not exchange of commodity but reduction of own share capital issued.

C No redemption of Vicky's Five Shares doesn't qualify for Sale or Exchange treatment as these are not exchange of commodity but reduction of own share capital issued.