Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per share on December 31, year 1. Viking has total E&P of $500,000. What are the tax consequences to Viking as a result of the stock redemption?

Question

Quizplus · Accepted Answer

The redemption will be treated as a dividend because Sven is treated as owning 100% of the corporation's stock after the redemption through his wife Olga. As a result, Viking reduces its E&P by the amount distributed.

Viking Corporation Is Owned Equally by Sven and His Wife