Claxton Corporation has three shareholders: Smith with 300 shares, Wesson with 300 shares, and Luger Corporation with 400 shares. None of the shareholders are related. Claxton has available E&P of $1,000,000 and Common Stock and Paid-in-capital of $2,000,000.

Smith requests a partial buyout. The other shareholders/directors agree and redeem 75 of Smith's shares for $225,000. The basis of Smith's shares redeemed is $150,000. Considering the tax effects of this transaction, which of the following statements is true?

Question options:

	a. Smith has a dividend income of $225,000
	b. Claxton will transfer $75,000 from E&P upon the redemption
	c. Smith's remaining basis per share increases after the redemption.

Answer rating: 100% (QA)

Answer The correct answer is optionB Claxton will transfer 7... View the full answer