Lesson 6A-In Class Exercise 1

Benton Corporation has 400 shares of stock outstanding owned by 4 unrelated individuals.  Benton redeems 100 shares from the shareholders as shown below for $500 per share.  Each shareholder has a basis of $230 per share.  Benton Corporation’s current and accumulated E&P at the end of the tax year is $150,000.

					Shares Held		   Shares
	Shareholder		   Before the Redemption	Redeemed
	Ethel				200			40	
	Fran				100			30
	Georgia			  50			30
	Henry				  50			 0
					400			100

a.  What are the tax consequences of the redemptions to Ethel, Fran, Georgia
(i.e. what are the amount and character of income, gain or loss recognized and the basis of the remaining shares for each distribute)

b.  How does your answer to part a change if Ethel is Georgia’s mother?