Starling Corporation was organized fifteen years ago to construct office furniture. Eight years ago, Starling began a fast food business. In the current year, Starling discontinues its fast food business and sells all of the assets used in that business for $2 million. Further, Starling distributes the entire sales proceeds in a pro rata redemption of 250 shares of stock from each of its two equal shareholders-Morgan, an individual, and Magpie Corporation (i.e., 500 shares in total redeemed). Morgan has a basis of $100,000 in her redeemed stock, Magpie Corporation has a basis of $125,000 in its redeemed stock, and both shareholders have held their stock interest in Starling for several years. Starling Corporation has E & P of $4 million and 2,000 shares outstanding at the time of the distribution. What are the tax consequences of the stock redemption to Morgan, to Magpie Corporation, and to Starling Corporation?

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The Answer of Starling Corporation was organized fifteen years ago to construct office furniture. Eight years ago, Starling began a fast food business. In the current year, Starling discontinues its fast food business and sells all of the assets used in that business for $2 million. Further, Starling distributes the entire sales proceeds in a pro rata redemption of 250 shares of stock from each of its two equal shareholders-Morgan, an individual, and Magpie Corporation (i.e., 500 shares in total redeemed). Morgan has a basis of $100,000 in her redeemed stock, Magpie Corporation has a basis of $125,000 in its redeemed stock, and both shareholders have held their stock interest in Starling for several years. Starling Corporation has E & P of $4 million and 2,000 shares outstanding at the time of the distribution. What are the tax consequences of the stock redemption to Morgan, to Magpie Corporation, and to Starling Corporation?

Starling Corporation Was Organized Fifteen Years Ago to Construct Office