Viking Corporation is owned equally by Sven and his wife, Olga, each of whom holds 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

A reduction in E&P is required because the distribution in redemption of stock is treated as a dividend to the extent of the corporation's E&P. Since Sven's 75 shares were redeemed for $2,000 each, the total distribution amounts to $150,000 ($2,000 * 75), which will reduce Viking's E&P by that amount.

Viking Corporation Is Owned Equally by Sven and His Wife