Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31, 20X3. Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000. The total fair market value of the stock distributed was $500,000. Regina Williams owned 1,000 shares of Townsend common stock, with a tax basis of $200 per share ($200,000 total). The fair market value of the common stock was $300 per share on December 31, 20X3. What is Regina's income tax basis per share in the new and existing common stock she owns in Townsend, assuming the distribution is tax-free?
What will be an ideal response?
$100 per share.
The new common stock is allocated part of the tax basis of the old common stock based on relative fair market value. In a 1-for-1 stock split, Regina would allocate half of the basis of the old common stock of $200 to the new common stock, making her tax basis in the old and new common stock $100 per share.
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