How would your answer to Problem differ if Julio were a corporate shareholder (in the 34% tax bracket) rather than an individual shareholder and the stock ownership in Gray Corporation represented a 25% interest?
In problem Julio is in the 33% tax bracket. He acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio received a payment of $150,000 from Gray Corporation in exchange for 1,000 of his shares in Gray. Gray has E & P of $1 million.
What tax liability would Julio incur on the payment in each of the following situations? Assume that Julio has no capital losses.