Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock. His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000. Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000. Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000. In applying the substantially disproportionate test to determine if this is a sale or a dividend, Boris is treated as owning how many shares of Bread after the sale?
A)30 shares
B)54 shares
C)60 shares
D)80 shares

Question

Quizplus · Accepted Answer

For the substantially disproportionate test under IRC Section 302(b)(2), Boris is treated as owning the shares owned by Butter Corporation because of the attribution rules. Since Butter Corporation owns 30 shares of Bread Corporation after the sale, and Boris personally owns 30 shares after the sale, he is treated as owning 60 shares (30 personal + 30 attributed from Butter Corporation) of Bread Corporation after the sale.

Boris Owns 60 of the 100 Shares Outstanding of Bread