Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per share on December 31, 20X3. Viking has total E&P of $500,000. What are the tax consequences to Viking because of the stock redemption?

Question

Quizplus · Accepted Answer

The redemption of Sven's stock is a distribution of property to a shareholder and is treated as a dividend to the extent of E&P. The amount of the dividend is the fair market value of the property distributed, which is $2,000 per share. Since Sven owns 100 shares, the total amount of the dividend is $200,000. Viking's E&P is reduced by the amount of the dividend, which is $150,000.

Viking Corporation Is Owned Equally by Sven and His Wife