T owns all shares of outstanding common stock of W Corporation.V Corporation and W agree to a merger whereby V will absorb W.T receives common and preferred stock in V, and her stock in W is canceled.T's receipt of the preferred stock has the same effect as a nontaxable stock dividend.

Question

Quizplus · Accepted Answer

When T receives preferred stock in V as part of a merger, it is treated as a nontaxable stock dividend. This is because T is exchanging her stock in W for stock in V, and the preferred stock is considered a dividend on the common stock she already owned in W. Therefore, there is no taxable event for T when she receives the preferred stock in V.

T Owns All Shares of Outstanding Common Stock of W