Question: 1.) During the current year, Gnatcatcher, Inc., (E & P of $1 million) distributed $200,000 each to Brandi and Yuen in redemption of some of

1.) During the current year, Gnatcatcher, Inc., (E & P of $1 million) distributed $200,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 33% tax bracket, and each had a $45,000 basis in her reedemed stock.

a. Assume the distribution to Brandi is a qualifying stock redemption. Determine Brandi's tax liability on the distribution.

b. Assume the distribution to Yuen is a nonqualified stock redemption. Determine Yuen's tax liability on the distribution.

2. Pursuent to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000).

a. Determine the gain or loss recognized by Carrot on the distribution if no liability is involved.

b. Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $690,000.

c. Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $885,000.

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