What are the tax consequences of the stock redemption

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Question

Nicholas is the sole shareholder of Ponce Corporation, having a basis of $90,000 in 1,000 shares of Ponce common stock. Last year, Ponce (E & P of $500,000) issued a dividend of 2,000 shares of preferred stock to Nicholas.

On the date of distribution, the fair market values per share of the common and preferred stocks were $160 and $20, respectively. In the current year, Ponce (E & P of $720,000) redeems all of Nicholas's preferred stock for its fair market value of $40,000.

(I) What are the tax consequences of the preferred stock dividend to Nicholas?

(II) What are the tax consequences of the stock redemption to Nicholas?

(III) What are the tax consequences of the stock redemption to Ponce?

Reference no: EM132359586

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