Corbin sold 100 shares of § 306 stock (basis of $4,000)in Owl Corporation to Linda (an unrelated individual)for $20,000.When the § 306 stock was issued to Corbin,the stock had a value of $20,000,and Owl's E & P was $500,000.At the time of the stock sale to Linda,Owl has E & P of $600,000,and Corbin has 600 shares of common stock (basis of $76,000)in Owl.With respect to the § 306 stock sale:

Question

Quizplus · Accepted Answer

Corbin's basis in the § 306 stock increases the basis of his common stock to $80,000 ($76,000 + $4,000).Owl's E & P is unaffected by the sale of the § 306 stock.Corbin has ordinary income equal to the entire proceeds from the sale of the § 306 stock,or $20,000.

Corbin Sold 100 Shares of § 306 Stock (Basis of $4,000)in