Final answer:
Marcus has an $800,000 long-term capital gain when he sells the XYZ Corporation shares, which he must report on his tax return for the year in which the sale occurred. The correct answer is option a.) Marcus has a $1 million long-term capital gain.
Step-by-step explanation:
When Marcus sold his shares to Medley's ESOP for $1.2 million and his adjusted basis was $200,000, he realized a capital gain of $1 million ($1.2 million sale price - $200,000 basis). This is a long-term capital gain if he held the shares for more than a year. When he subsequently buys and sells shares in XYZ Corporation, the purchase price was $1.2 million (20,000 shares at $60 per share). Four years later, he sold these shares for $100 per share, totaling $2 million. The capital gain on this latter sale is the difference between the sale proceeds and the purchase price, which is $800,000 ($2 million - $1.2 million).
Marcus's tax implication for selling the XYZ Corporation shares would be an $800,000 long-term capital gain, assuming the shares were bought and held as a capital asset and he didn't have any reinvestment options under specific tax-deferred or exclusionary provisions (which aren't mentioned in the question).
The tax implications of the sale are as follows:
Marcus has a long-term capital gain of $1 million. This is calculated by subtracting his adjusted basis of $200,000 from the sales price of $1.2 million.
The correct answer is option a.) Marcus has a $1 million long-term capital gain.