Since Garnet Corporation was formed five years ago, its stock has been held as follows: 525 shares by Frank and 175 shares by Grace. Basis in the stock is $350,000 for Frank and $150,000 for Grace. As part of a stock redemption, Garnet redeems 125 of Frank’s shares for $175,000 and 125 of Grace’s shares for $175,000.What are the tax consequences of the stock redemption to Frank and Grace? Be sure to review Chapter 6 on stock redemptions.How would the tax consequences to Frank and Grace be different if, instead of the redemption, they each sold 125 shares to Chuck (an unrelated party)?What factors should influence their decision on whether to redeem or sell the 250 shares of stock?I need help with calculating Grace recognized long-term capital gain, I know Frank is 175,000 however cant figure out Grace.

(1) the tax liability will be treated as a dividend for frank since this does not affect his…

Answered: Since Garnet Co

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter18: Comparative Forms Of Doing Business

Section: Chapter Questions

Problem 31P

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Since Garnet Corporation was formed five years ago, its stock has been held as follows: 525 shares by Frank and 175 shares by Grace. Basis in the stock is $350,000 for Frank and $150,000 for Grace. As part of a stock redemption, Garnet redeems 125 of Frank’s shares for $175,000 and 125 of Grace’s shares for $175,000.

What are the tax consequences of the stock redemption to Frank and Grace? Be sure to review Chapter 6 on stock redemptions.
How would the tax consequences to Frank and Grace be different if, instead of the redemption, they each sold 125 shares to Chuck (an unrelated party)?
What factors should influence their decision on whether to redeem or sell the 250 shares of stock?

I need help with calculating Grace recognized long-term capital gain, I know Frank is 175,000 however cant figure out Grace.

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