A, B, & C are shareholders in ABC Corp., a "C" corporation formed to invest and develop real estate. A & B formed the corporation with A investing $50K cash, and B contributing land. B's basis in the land is $40K, and, at the time of contribution it had a fair market value of $50K. In return each shareholder received 100 shares of common stock. Some time later, C became a shareholder, by contributing land with a fair market value of $60K. Its basis to C is $30K. In return for the land, C received 100 shares of common stock. Appearing below are selected transactions for the entity. At the time of the transactions, ABC Corp. has a $150K balance in accumulated E&P.
1. All three shareholders redeem 10 of their shares of common stock, and, in return, each shareholder receives $10K.
a. What is the tax impact on the shareholders?
b. Explain your answer.
c. What is the tax impact on the corporation?
d. Explain your answer.