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Cotte Inc. has three shareholders, Phil, Bill, and Hill. Each shareholder owns 100 shares

Cotte Inc. has three shareholders, Phil, Bill, and Hill. Each shareholder owns 100 shares

Cotte Inc. has three shareholders, Phil, Bill, and Hill. Each shareholder owns 100 shares of common stock. On July 1 of this year, Cotte Inc. redeemed 30 shares from each shareholder. In return, each shareholder received $10,000. Phil acquired his shares three years ago and his adjusted basis in his 100 shares was $3,000 at the time of the redemption. Cotte has $100,000 of accumulated E&P as of the end of the prior year, and anticipates earning a further $20,000 in E&P in the current year.
Please address the following:

  1. What are the federal tax consequences to Cotte, Inc. and Phil arising from this distribution?

Answer: Phil has to pay for his long-term capital gain taxes:
15% X ($10,000 – 30X$3000/100)=$1365.00;
no taxes consequences arising for Cotte Inc. from this distribution

Tripti 06-Dec-2019

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