Roger owns 40% of the stock of Silver, Inc. (adjusted basis of $500,000). Silver redeems 75% of his shares for $650,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $150,000.

Question

Quizplus · Accepted Answer

Based on the given information, Roger's recognized gain should be $0, not $150,000. Since 75% of his shares were redeemed, he would only recognize gain on 25% of his adjusted basis (40% x 25% = 10%). Therefore, his recognized gain would be $65,000 (10% x $650,000), not $150,000.

Roger Owns 40% of the Stock of Silver, Inc