Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?
A) Zed recognizes no gain in this reorganization.
B) Zed reports a $50,000 recognized dividend.
C) Zed reports a $50,000 recognized capital gain.
D) Zed reports a $40,000 recognized dividend and a $10,000 capital gain.

Question

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The Answer of Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?
A) Zed recognizes no gain in this reorganization.
B) Zed reports a $50,000 recognized dividend.
C) Zed reports a $50,000 recognized capital gain.
D) Zed reports a $40,000 recognized dividend and a $10,000 capital gain.

Bobcat Corporation Redeems All of Zed's 4,000 Shares and Distributes