Malcolm is an S corporation shareholder with a $120,000 basis in his stock. Malcolm owns 20% of the
corporation. The corporation decides to redeem Malcolm’s interest by distributing to him $140,000 of
securities with a basis to the S corporation of $100,000.

1) As a result of this decision, what is Malcolm’s basis in his S corporation stock immediately
prior to receiving these securities? NOTE: Assume there are two steps here: the
corporation’s distribution of the securities and the shareholder’s receipt of them. This
question addresses the first step and #2 addresses the second step.

2) Refer to the data for Question #1. What is Malcolm’s gain or loss on receiving the
securities in redemption of his S corporation stock?

3) Refer to the data for Question #1. What is his basis in the securities received in full
redemption of his stock?

Answer rating: 100% (QA)

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