If C corporations retain their after-tax earnings, when will their shareholders be taxed on the retained earnings?
A) Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return.
B) Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings.
C) Shareholders will be taxed when they sell their shares at a gain.
D) None of the choices are correct.

Question

Quizplus · Accepted Answer

Shareholders will be taxed on the retained earnings when they sell their shares at a gain because the retained earnings are reflected in the corporation's stock price, which is realized as a gain when the shares are sold.

If C Corporations Retain Their After-Tax Earnings, When Will Their