Final answer:
Joshua must report $45,200 as dividend income from the redemption of 60% of his stock in Sylvie Corporation, given his basis is $8,000 and he receives $50,000 for the redemption, assuming it is treated as a dividend.
Step-by-step explanation:
The student asked about reporting dividend income from a stock redemption by Sylvie Corporation, owned by Joshua. When Sylvie Corporation redeems 60% of Joshua's stock for $50,000, the key factors are Joshua's stock basis (the amount he initially invested) and Sylvie Corporation's Earnings & Profits (E & P). In this scenario, Joshua's basis in his stock is $8,000, and the corporation has $40,000 of E & P before any redemption. Generally, the redemption is treated as a sale or exchange unless it qualifies as essentially equivalent to a dividend.
The treatment depends on the facts and circumstances and IRS guidelines under Section 302 of the Internal Revenue Code. However, if we treat the transaction as a dividend, Joshua must report as dividend income the amount received over his basis in the redeemed stock. Since Joshua's basis in 60% of his stock is $4,800 (60% of $8,000), and he receives $50,000, the difference, which is $45,200, would be reported as dividend income, assuming no other qualifying circumstances change the character of the payment.