How will Napoli be taxed on the redemption of her stock

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Question - The 100 shares of outstanding common stock of Florence corporation are owned by Napoli and Pisa. Napoli owns 45 shares and Pisa owns 55 shares. The shareholders acquired their stock in 2019 and neither shareholder is related to the other. Each shareholder has a basis in her stock of $100 per share. During the tax year of 2020, Napoli sold 15 of her shares of stock back to Florence corporation for $100,000. Assuming that Florence corporation has a substantial earning and profits. How will Napoli be taxed on the redemption of her stock.

a. Dividend income of $8,500

b. Dividend income of $10,000

c. Long term capital gain of $8,500

d. Long term capital gain of $10,000

Reference no: EM133037999

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