Randy, age 63, is a participant in the stock bonus plan of XYZ, Inc., a closely held
Question:
Randy, age 63, is a participant in the stock bonus plan of XYZ, Inc., a closely held corporation. Randy received contributions in shares of XYZ stock to the stock bonus plan and XYZ, Inc. had the following income tax deductions:
| Years | # of Shares | Deduction per Share At Time of Contribution |
|---|---|---|
| Year 1 | 100 | $12 |
| Year 2 | 125 | $15 |
| Year 3 | 150 | $8 |
| Year 4 | 200 | $18 |
| Year 5 | 400 | $20 |
| Total | 975 | Simple Average Price $14.75 |
Randy terminates employment in August of Year 6 and takes a distribution from the plant consisting of 975 shares of XYZ, Inc., having a fair market value of $24,000. If Randy sells the stock for $40,000 six months after receiving the distributions, which of the following statements are true?
1. Randy has ordinary income of $14,382 in year 6.
2. Randy has long term capital gain of $24,000 in year 6.
3. Randy has long term capital gain of $8,125 in year 6.
4. Randy has a short term capital gain of $16,000 in year 7.
a. 1
b. 4
c. 3&4
d. 2&4
Expert Answer:
