If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares
A)based on the par value of the stock.
B)equally to all shares owned after the stock dividend.
C)based on relative fair market values at the time of the stock dividend.
D)none of the above.

Question

Quizplus · Accepted Answer

The original stock's basis should be allocated based on relative fair market values at the time of the stock dividend. This is because the basis needs to be adjusted to reflect the change in value of the stock due to the stock dividend. Allocating based on par value or equally to all shares owned would not accurately reflect the change in value.

If a Nontaxable Stock Dividend Is Received and Is Not