Equal shareholders in redemption

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Reference no: EM134044737

Question

Alpha Corporation operates a book publishing business ("Books") and a bar exam review course ("Cram") as divisions (i.e., not as separately incorporated entities). Alpha's single class of common stock outstanding is owned in equal shares by Michael, Pamela (Michael's wife) and Iris Corporation. neither Michael nor Pamela owns any stock in Iris. Alpha also owns all of the stock of Beta Corporation, a separately incorporated company which is engaged in the beta processing business, and it directly owns a diversified securities portfolio. What are the shareholder level tax consequences of the following alternative transactions:

1. Alpha has operated Books and Cram for more than five years and it distributes the assets of Books to its three equal shareholders in redemption of 50 shares from each shareholder. Any different result if the redemption is made without an actual surrender of shares?

2. What if all the assets of Books were destroyed by fire and Alpha distributes one-half of the insurance proceeds equally to its three shareholders in redemption of an appropriate number of shares of stock and retains the remaining proceeds to carry on its book publishing business on a somewhat smaller scale?

Reference no: EM134044737

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