Reference no: EM132004978

Questions -

Q1. Cerulean Corporation has two equal shareholders, Eloise and Olivia. Eloise acquired her Cerulean stock three years ago by transferring property worth 700,000 basis of 300,000 for 70 shares of the stock. Olivia acquired 70 shares in Cerulean Corporation two years ago by transferring property 660,000 basis of 110,000. Cerulean Corporation's accumulated E & P as of January 1 of the current year is 350,000. On March 1 of the current year, the corporation distributed to Eloise property worth 120,000 basis to Cerulean of 50,000. It distributed cash of 220,000 to Olivia. On July 1 of the current year, Olivia sold her stock to Magnus for 820,000. On December 1 of the current year Cerulean distributed cash of 90,000 each to Magnus and Eloise. What are the tax issues?

Q2. Robert and Lori (Robert's sister) own all of the stock in Swan Corporation (E& P of 1 million) each own 500 shares and has a basis of 85,000 in the shares. Robert wants to sell his stock for 600,000, the FMV but he will continue to be employed as an officer of the Swan Corporation after the sale. Lori would like to purchase Roberts share and thus become the sole shareholder in Swan, but Lori is short of funds. What are the tax consequences to Robert, Lori and Swan Corporation under the following circumstances?

Swan Corporation distributes cash of 600,000 to Lori and she uses the cash to purchase Robert's shares.

Swan Corporation redeems all of Robert's shares for 600,000.