Five years ago,Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $300,000 and a fair market value of $450,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $600,000)redeems 200 shares from Eleanor for $190,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:
A)$130,000 dividend.
B)$190,000 dividend.
C)$130,000 capital gain.
D)$190,000 capital gain.
E)None of the above.

Question

Quizplus · Accepted Answer

Eleanor's capital gain is calculated as the redemption amount ($190,000) minus the basis of the redeemed shares. The basis of the 200 shares is $60,000 (20% of $300,000), resulting in a capital gain of $130,000.

Five Years Ago,Eleanor Transferred Property She Had Used in Her