Jude received a $25,000 distribution from BC Corporation that the corporation identified as $15,000 dividend and $10,000 return of capital.What effect does this distribution have on Jude's taxable income if his basis in the stock of BC is $8,000?

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Quizplus · Accepted Answer

The $15,000 identified as a dividend is taxable income for Jude. The $10,000 return of capital reduces his basis in the stock. Since his basis is $8,000, the excess $2,000 ($10,000 - $8,000) is also taxable. Therefore, Jude's taxable income increases by $17,000 ($15,000 dividend + $2,000 excess return of capital).

Jude Received a $25,000 Distribution from BC Corporation That the Corporation