36) Identify which of the following statements is true. 39) Bat Corporation distributes stock rights with a ,000 FMV to its common stock shareholders.
41) Bruce receives 20 stock rights in a nontaxable distribution. The common stock with respect to which the rights are issued has a basis of ,000 and an FMV of 0,000. C) A shareholder can redeem part of his stock and recognize a capital gain if the corporation has only one shareholder. Tags distributions nonliquidating corporate chapter stock rights corporation basis shareholder property distribution capital gain truea identify followingstatements common dividend shareholders allocate underlying distributed value distributes taxable 0 holding period eampp rightsd corporate anfmv corporations reduced …Answer: x Explanation: xx ,000/[3,000 shares xx 05× 3,000 xxxxxxxx = xx xx Page xxx : C:4-14 xxx Tia owns xxxxx shares xx xxxx Corporation xxxxxx stock with xx ,000 basis xxxx distributes x xxxxxxxxxx preferred xxxxx dividend When xxx preferred stock xx distributed, xx xxx an xxx of ,000 xxx the FMV xx the xxxxx xxxxxx stock xxxxxx is 0,000 xxx basis of xxx preferred xxxxx xx A) xx B) ,000 xx ,000 D) xxxxxxx Answer: x xxxxxxxxxxxx B) xxxxxxxx (FMV)/0,000 (total xxxxxxx ,000 (basis) x ,000 xxxxx xx allocated xxxxx on relative xxxx Page Ref x C:4-14; xxxxxxx xxxxxx 39) xxx Corporation distributes xxxxx rights with x ,000 xxx xx its xxxxxx stock shareholders xxx ,000 value xx the xxxxx xxxxxx at xxx time of xxxxxxxxxxxx is less xxxx 15% xx xxx value xx the underlying xxxxx Which of xxx following xxxxxxxxxx xx true?
To the extent that a distribution is made from the corporation’s earnings and profits, it is taxed to the shareholder as a dividend. The portion of the distribution that is not considered a dividend is applied first to reduce the shareholder’s basis in the corporation’s stock. Any remaining portion is treated as gain from the sale or exchange of property (capital gain). Important Note: If a shareholder assumes a liability or takes property subject to a liability, the amount of the distribution is reduced by the amount of the liability. Special rules also apply at the corporate level. Special rules apply to distributions to a shareholder in exchange for the shareholder’s stock (redemptions).
Instead of being treated as dividends, redemptions are treated as a sale or exchange of the stock by the shareholder. The distinction can be important when the long-term capital gains rates (which apply to redemptions) are higher than the tax rates on dividends.
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