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

Question

Quizplus · Accepted Answer

Shareholders of C corporations will only be taxed on retained earnings when they sell their shares and realize a gain on their investment. This is because the retained earnings are not distributed as dividends and therefore are not taxable to the shareholders in the year they are earned by the corporation.

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