At the time of its incorporation, Alleham Ltd. issued 176,000 common shares in return for $3,960,000 in cash ($22.50 per share). All of the shares were issued to Mr. Izaak Alleham, the founder of the Company. Mr. Alleham is still holding all of the originally issued shares, except for 30,000 shares that Mr. Alleham sold to his sister for $18.75 per share, the estimated fair market value of the shares at that time. Because Mr. Alleham does not approve of his sister's increasingly irresponsible lifestyle, he would prefer to sever all relations with her. To facilitate this goal, he arranges to have Alleham Ltd. redeem all of her 30,000 Alleham Ltd. shares at a price of $24.35 per share. Any dividends resulting from the redemption will be non-eligible. Determine the tax consequences of this redemption to Mr. Alleham, as well as to his sister.

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The Answer of At the time of its incorporation, Alleham Ltd. issued 176,000 common shares in return for $3,960,000 in cash ($22.50 per share). All of the shares were issued to Mr. Izaak Alleham, the founder of the Company. Mr. Alleham is still holding all of the originally issued shares, except for 30,000 shares that Mr. Alleham sold to his sister for $18.75 per share, the estimated fair market value of the shares at that time. Because Mr. Alleham does not approve of his sister's increasingly irresponsible lifestyle, he would prefer to sever all relations with her. To facilitate this goal, he arranges to have Alleham Ltd. redeem all of her 30,000 Alleham Ltd. shares at a price of $24.35 per share. Any dividends resulting from the redemption will be non-eligible. Determine the tax consequences of this redemption to Mr. Alleham, as well as to his sister.

At the Time of Its Incorporation, Alleham Ltd