Question

Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock in the company on December 31, 20X3. Viking paid Sven $2,000 per share. His income tax basis in each share is $1,000. Viking has total E&P of $500,000. What are the tax consequences to Sven because of the stock redemption?

Answer 1

The Tax Consequence for Viking Corporation for redeeming Sven's 75 shares at $2,000 each is a reduction of $150,000 in the Viking's Earnings and Profit.

Step-by-step explanation:

• Viking Corporation redeemed 75 shares out of Sven's 100 shares in the company.

• This means that Sven's ownership in Viking has reduced to 25 shares.

• In order to redeem the 75 shares from Sven, Viking paid $2,000 per share
• Total Paid for the 75 share = 75 x $2,000= $150,000

• Since Vikings's Total Earnings and Profit is $500,000,

• The payment of $150,000 to redeem Sven's stock will:

• Reduce the Earnings and Profit for tax consequesnces

• = $500,000- $150,000= $350,000

• Summary, the Tax Consequence for Viking Corporation for redeeming Sven's 75 shares at $2,000 each is a reduction of $150,000 in the Viking's Earnings and Profit.