Theo owns 300 shares of Cratic corp. His basis in the shares is $7,000. He is given by the corporation rights to buy additional shares. At the time of the distribution the rights are worth $15,000 and Theo’s shares are worth $200,000.
a). Does Theo have gross income as a result of the distribution and if so how much is it?
b). What is the basis of the rights to Theo?
c). Does the answer to the previous question change, and if so how, if the value of Theo’s stock at the time of the distribution was $60,000?
d). What three things can Theo do with the rights?
e). If the rights expire without any action on Theo’s part what if anything happens to any basis Theo might have in the rights?
