Dove Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. The shares are owned as follows: Julia, 600 shares; Maxine (Julia’s sister), 300 shares; and Janine (Julia’s daughter), 100 shares. Dove owns land (basis $300,000, fair market value $260,000) that it purchased as an investment seven years ago.
Dove distributes the land to Julia in exchange for all of her shares in the corporation. Julia had a basis of $275,000 in the shares. What are the tax consequences for both Dove and Julia if the distribution is?
a. A qualifying stock redemption?
b. A liquidating distribution?