Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on

Question:

Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100% of Aggie Corporation. The distribution was in exchange for 50% of Rusty’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Rusty’s income tax basis in the shares was $50 per share. Aggie had total E&P of $8,000,000 at the time of the distribution.

a. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation?

b. Assuming Aggie made no other distributions to Rusty during the year, by what amount does Aggie reduce its total E&P as a result of the partial liquidation?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....

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