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Tammy Olsen has owned 100% of the common stock of Green Corporation (basis of $75,000) since the corporations formation in 2000.
Tammy Olsen has owned 100% of the common stock of Green Corporation (basis of $75,000) since the corporations formation in 2000. In 2006, when Green had E&P of $320,000, the corporation distributed to Tammy a nontaxable dividend of 500 shares of preferred stock (value of $100,000 on date of distribution) on her common stock interest (value of $400,000 on date of distribution). In 2007, Tammy donated the 500 shares of preferred stock to her favorite charity, State University. Tammy deducted $100,000 the fair market value of the stock on the date of the gift, as a charitable contribution on her 2007 income tax return. Tammys adjusted gross income for 2007 was $420,000. Six months after the contribution, Green Corporation redeemed the preferred stock from State University of $100,000. Upon audit of Tammys 2007 return, the IRS disallowed the entire deduction for the gift to State University, asserting that the preferred stock was section 306 stock and that section 170(e)(1)(A) precluded a deduction for contributions of such stock. What is the proper tax treatment for Tammys contribution of Green Corporation preferred stock?
