Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?
A)The distribution is a dividend to the extent of the corporation's E&P, then a return of capital, and finally gain from sale of stock.
B)The distribution is a return of capital, then a dividend to the extent of the corporation's E&P, and finally gain from sale of stock.
C)The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's E&P.
D)The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's E&P or a return of capital, followed by gain from sale of stock.

Question

Quizplus · Accepted Answer

The correct tax treatment of a distribution from a corporation to a shareholder is first considered a dividend to the extent of the corporation's Earnings and Profits (E&P), then a return of capital (which reduces the shareholder's basis in the stock), and finally, any remaining amount is treated as a gain from the sale of stock.

Which of the Following Statements Best Describes the Priority of the Tax