Adam, Betty, Carmen, the ABC Partnership, BCA Corporation, and the Munster Family Trust own shares of Zebra Corporation’s single class of stock as follows:

Shareholder	Shares held		Adjusted basis
Adam		600	$150,000
Betty (Adam’s sister)		1000	$250,000
Carmen (Adam’s daughter)		200	$50,000
ABC Partnership		400	$100,000
BCA Corporation		1200	$300,000
Munster Family Trust		600	$150,000
Total		4000

The Zebra shareholders have owned their shares for more than one year. The partners of the ABC Partnership have the following interests in the partnership: Adam 40%, Betty 30%, and Carmen 30%. The shareholders of BCA Corporation own shares as follows:

Adam 10%, Betty 60%, and Carmen 30%. The equal beneficiaries of the Munster Family Trust are Devon (Adam’s grandson) and Jane (Betty’s granddaughter). Adam is considering having Zebra redeem some of her shares in exchange for cash. On the day of the planned redemption, Zebra will have $50,000 of current E&P and $150,000 of prior accumulated E&P. Determine the tax consequences of the following two independent transactions to Adam and Zebra Corporation.

a. Zebra redeems 100 shares of its stock from Adam in exchange for $160,000.

b. Zebra redeems 300 shares of its stock from Adam in exchange for $480,000.

Answer rating: 100% (QA)

a In this case Adam will recognize the transaction as a ... View the full answer