Half Moon Corporation made a distribution of $300,000 to Arnold Swartz in partial liquidation of the company on December 31, 20X3. Arnold owns 100 percent of Half Moon Corporation (1,200 shares). The distribution was in exchange for 50 percent of Arnold's stock in the company (600 shares). At the time of the distribution, the shares had a fair market value of $500 per share. Arnold's income tax basis in the shares was $250 per share. Half Moon had total E&P of $2,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Arnold as a result of the partial liquidation?
What will be an ideal response?
$150,000 capital gain.
An individual receives exchange treatment on distributions in partial liquidation of stock. As a result, Arnold reports capital gain of $150,000 on the stock exchanged ($300,000 ? $150,000).
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What will be an ideal response?
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