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A corporation declares a 15% stock distribution. The shareholders have a choice between the stock or $150 in cash per each share. The fair market value (FMV) of the stock is $160 per share. Shareholder A owns 600 shares and has a basis in the stock of $33,000. Shareholder B owns 400 shares and has a basis in the stock of $36,000. The corporation has
$30,000 of earnings and profits (E&P). What is the character of the distribution for Shareholder B if both shareholders elect to receive cash?

Respuesta :

anthougo

The character of the distribution for Shareholder B if both shareholders elect to receive cash is a return of capital to the shareholders (capital dividend).

What is the capital dividend?

A capital dividend is a payment that is drawn from a company's paid-in-capital or shareholders' equity instead of from earnings.

When capital is returned to shareholders, their investment bases in the stock reduce, thereby, increasing their capital gains and the subsequent taxes.

Thus, the character of the distribution for Shareholder B if both shareholders elect to receive cash is a return of capital to the shareholders (capital dividend).

Learn more capital dividends at https://brainly.com/question/27456116

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