Sisters Theresa, Jessica, and Andrea own 100 shares, 100 shares, and 200 shares,
ID: 2501907 • Letter: S
Question
Sisters Theresa, Jessica, and Andrea own 100 shares, 100 shares, and 200 shares, respectively, in Red Corporation. Red Corporation has E and P of $150,000. The corporation redeems 60 shares of Andrea's stock for $60,000. Andrea paid $250 per share for the stock 5 years ago. Which happens with respect to the redemption?
Andrea has a long-term capital gain of $45,000.
Andrea has a long-term capital gain of $60,000.
Andrea has dividend income of $60,000.
Andrea has dividend income of $45,000.
None of the above
Explanation / Answer
The amount received from the company on redemption of shares shall be taxable as long term capital gain in the hands of shareholder. Therefore, the amount of $60000 shall be taxable as long-term capital gain in the hands of Andrea.