Discuss the federal income tax consequences

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Reference no: EM132745519

Question: Mary Gold owns all of the outstanding stock of RL4, Inc. which owns and operates two motels under the name "Rooms-4-Less". Mary is a widow and has four unmarried adult children. Each motel is a 100 unit building that rents to vacationers on a heavily traveled interstate highway. RL4 has no other source of income other than the gross rents from the motels. Mary formed RL4 twelve years ago by contributing $1,000,000 in cash for all of the RL4 stock.

Five years ago, in order to reduce her potential estate tax, she gifted 40% of her RL4 stock to her four children. Since that time, RL4 has suffered operating losses as a result of intense competition from other motel chains. Mary and the four children have recently sold their stock to another motel operator for a total price of $600,000.

Required: Analyze the transaction above and discuss the Federal income tax consequences of the sale of the RL4 stock by Mary and the children. Discuss specifically the amount and classification of any loss recognized by them on the sale.

Reference no: EM132745519

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