Joe owns 40 percent of the stock of AD Corporation's 2,000 outstanding shares.If Joe sells some stock back to the corporation,what is the maximum percentage of ownership that Joe can have of the outstanding stock after the sale to qualify for capital gain treatment rather than having dividend income?

Question

Quizplus · Accepted Answer

To qualify for capital gain treatment, Joe must own less than 50% of the outstanding stock after the sale. If Joe owns 40% of the current 2,000 outstanding shares, he owns 800 shares. To determine the maximum percentage of ownership Joe can have after the sale to qualify for capital gain treatment, we need to solve the following equation:

(800 - x) / (2,000 - x) < 0.5
where x is the number of shares Joe sells back to the corporation.

Solving for x, we get x > 640, which means Joe can sell up to 640 shares back to the corporation.

Joe's new ownership percentage would be (800 - 640) / (2,000 - 640) = 31.9%, which is less than 50% and therefore qualifies for capital gain treatment.

Joe Owns 40 Percent of the Stock of AD Corporation's