Puffin Corporation's 2,000 shares outstanding are owned as follows: Paul, 800 shares; Sandra (Paul's sister), 800 shares; and Greta (Paul's granddaughter), 400 shares. During the current year, Puffin (E & P of $1 million) redeemed 600 shares of Paul's stock for $100,000. If Paul acquired the 600 shares five years ago for $30,000, he will have a long-term capital gain of $70,000 from the redemption.

Question

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Paul's basis in the shares is $30,000, and he sold them for $100,000. The difference of $70,000 is a long-term capital gain because he held the shares for more than one year (specifically, five years).

Puffin Corporation's 2,000 Shares Outstanding Are Owned as Follows: Paul