Green Rock Inc. is a qualified S Corporation with two equal shareholders. As of January 2, it had the following balance sheets: Basis FMV Cash $15,000 $15,000 Real Estate - P1 $200,000 $350,000 Real Estate - P2 $580,000 $1,350,000 Real Estate - P3 $1,200,000 $1,785,000 Total Assets $1,995,000 $3,500,000 Liabilities $1,150,000 $1,150,000 Capital Stock $500,000 $500,000 Retained Earnings, Including Unrealized Gain $345,000 $1,850,000 Total Liabilities and Equity $1,995,000 $3,500,000 On that date, Benita sold all of her shares (half of the outstanding shares) in the S Corporation for $1,175,000 to an unrelated buyer. 1. What tax basis will the unrelated buyer take in the S Corporation shares purchased from Benita? 2. Assume that Green Rock sells P2 in December for its $1,350,000 fair value. How much of the gain recognized by Green Rock on the sale will be allocated to the new shareholder (the buyer of Benita's shares)? 3. Assume that in addition to the gain recognized on the sale of P2, Green Rock recognizes another $140,000 in taxable income. What will the new shareholder's tax basis be in her Green Rock shares at the end of the year

Answer rating: 100% (QA)

1 The tax basis for the unrelated buyer in the S Corporation shares purchased from Benita will be th... View the full answer