White Corporation has manufactured lawn furniture for 6 years.In addition,for the last 3 years,White has operated a separate division that sells barbecue equipment.Helen,an individual,and Gray Corporation each acquired 100 shares of stock in White (basis of $10,000 per share)10 years ago.In the current year,the barbecue equipment division is entirely destroyed by fire.White Corporation decides to discontinue the business and distributes all of the $4 million of insurance proceeds collected as a result of the fire to Helen and Gray Corporation in redemption of 20 shares of stock from each shareholder.Determine the tax consequences of the stock redemption to White Corporation (E & P of $7 million),to Gray Corporation,and to Helen.

Question

Quizplus · Accepted Answer

The Answer of White Corporation has manufactured lawn furniture for 6 years.In addition,for the last 3 years,White has operated a separate division that sells barbecue equipment.Helen,an individual,and Gray Corporation each acquired 100 shares of stock in White (basis of $10,000 per share)10 years ago.In the current year,the barbecue equipment division is entirely destroyed by fire.White Corporation decides to discontinue the business and distributes all of the $4 million of insurance proceeds collected as a result of the fire to Helen and Gray Corporation in redemption of 20 shares of stock from each shareholder.Determine the tax consequences of the stock redemption to White Corporation (E & P of $7 million),to Gray Corporation,and to Helen.

White Corporation Has Manufactured Lawn Furniture for 6 Years