Petoskey Stone Quarry Incorporated (PSQ), a calendar-year, accrual-method C corporation, provides landscaping supplies to local builders...

 

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Petoskey Stone Quarry Incorporated (PSQ), a calendar-year, accrual-method C corporation, provides landscaping supplies to local builders in northern Michigan. PSQ has always been a family-owned business and has a single class of voting common stock outstanding. The 500 outstanding shares are owned as follows: Number of Nick Abigail (Nick's daughter) Charlie (Nick's son) Sandler (Nick's father) Amy (Sandler's sister) Total shares shares 150 50 50 100 150 500 Nick serves as president of PSQ, and his father, Sandler, serves as chair of the board. Amy is the company's CFO, and Abigail and Charlie work as employees of the company. Sandler would like to retire and sell his shares back to the company. The fair market value of the shares is $500,000. Sandler's tax basis is $10,000. The redemption is tentatively scheduled to take place on December 31 of this year. At the beginning of the year, PSQ had accumulated earnings and profits of $2,500,000. The company projects current E&P of $200,000. The company intends to pay pro rata cash dividends of $300 per share to its shareholders on December 1 of this year. Required: a) Assume the redemption takes place as planned on December 31 and no elections are made by the shareholders. 1) What amount of dividend or capital gain will Sandler recognize because of the stock redemption? 2) How will the tax basis of Sandler's stock be allocated to the remaining shareholders? b) If Sandler files a proper election to waive the family attribution rules, what is the amount of his gain? Petoskey Stone Quarry Incorporated (PSQ), a calendar-year, accrual-method C corporation, provides landscaping supplies to local builders in northern Michigan. PSQ has always been a family-owned business and has a single class of voting common stock outstanding. The 500 outstanding shares are owned as follows: Number of Nick Abigail (Nick's daughter) Charlie (Nick's son) Sandler (Nick's father) Amy (Sandler's sister) Total shares shares 150 50 50 100 150 500 Nick serves as president of PSQ, and his father, Sandler, serves as chair of the board. Amy is the company's CFO, and Abigail and Charlie work as employees of the company. Sandler would like to retire and sell his shares back to the company. The fair market value of the shares is $500,000. Sandler's tax basis is $10,000. The redemption is tentatively scheduled to take place on December 31 of this year. At the beginning of the year, PSQ had accumulated earnings and profits of $2,500,000. The company projects current E&P of $200,000. The company intends to pay pro rata cash dividends of $300 per share to its shareholders on December 1 of this year. Required: a) Assume the redemption takes place as planned on December 31 and no elections are made by the shareholders. 1) What amount of dividend or capital gain will Sandler recognize because of the stock redemption? 2) How will the tax basis of Sandler's stock be allocated to the remaining shareholders? b) If Sandler files a proper election to waive the family attribution rules, what is the amount of his gain?