Question 4: (20 points) Facts: On January 1, 2022, Will Smith owns 100 shares of the...

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Question 4: (20 points) Facts: On January 1, 2022, Will Smith owns 100 shares of the voting common stock of Movies, Inc. ("MOVIE"), a Delaware corporation, which constitute all of the shares of MOVIE stock outstanding. Will Smith has a basis of $12,000 in all of his MOVIE shares, or $120 per share. At the start of 2022, MOVIE has accumulated earnings and profits of $20,000, and it generates a deficit of current earnings and profits of $5,000 in 2022. MOVIE has two assets an awards trophy with value of $10,000 and basis of $20,000, and Hollywood memorabilia with a value of $20,000 and basis of $20,000. On June 30, 2022, MOVIE distributes the awards trophy to Will Smith as a distribution with respect to his MOVIE stock. On September 30, 2022, Will Smith sells all 100 shares of his MOVIE stock to Chris Rock for just $10,000 as an apology for a scandalous incident that occurred at a certain awards show earlier in 2022. Thereafter, on December 31, 2022, MOVIE distributes the Hollywood memorabilia to Chris Rock as a distribution with respect to his MOVIE stock. Questions: What are the U.S. federal income tax consequences to MOVIE, Will Smith, and Chris Rock of the distributions made by MOVIE in 2022? How much gain is recognized by Will Smith in the sale of all of his MOVIE stock to Chris Rock? Question 4: (20 points) Facts: On January 1, 2022, Will Smith owns 100 shares of the voting common stock of Movies, Inc. ("MOVIE"), a Delaware corporation, which constitute all of the shares of MOVIE stock outstanding. Will Smith has a basis of $12,000 in all of his MOVIE shares, or $120 per share. At the start of 2022, MOVIE has accumulated earnings and profits of $20,000, and it generates a deficit of current earnings and profits of $5,000 in 2022. MOVIE has two assets an awards trophy with value of $10,000 and basis of $20,000, and Hollywood memorabilia with a value of $20,000 and basis of $20,000. On June 30, 2022, MOVIE distributes the awards trophy to Will Smith as a distribution with respect to his MOVIE stock. On September 30, 2022, Will Smith sells all 100 shares of his MOVIE stock to Chris Rock for just $10,000 as an apology for a scandalous incident that occurred at a certain awards show earlier in 2022. Thereafter, on December 31, 2022, MOVIE distributes the Hollywood memorabilia to Chris Rock as a distribution with respect to his MOVIE stock. Questions: What are the U.S. federal income tax consequences to MOVIE, Will Smith, and Chris Rock of the distributions made by MOVIE in 2022? How much gain is recognized by Will Smith in the sale of all of his MOVIE stock to Chris Rock?

Answer rating: 100% (QA)

Step 11 The US federal income tax consequences of the distributions made by MOVIE in 2022 depend on ... View the full answer