What are the tax consequences to pam

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Question - Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption?

A. $25,000 capital gain and a tax basis in each of her remaining shares of $100

B. $50,000 dividend and a tax basis in each of her remaining shares of $50

C. $50,000 dividend and a tax basis in each of her remaining shares of $100

D. $25,000 capital gain and a tax basis in each of her remaining shares of $500

Reference no: EM131802745

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