Roy receives a nonliquidating distribution from Ageless Corporation. Which of the following statements concerning nonliquidating distributions from a corporation are correct?
I.A nonliquidating cash distribution is taxable if the distribution comes from the corporation's current or accumulated earnings and profits.
II.The amount of the dividend on a nonliquidating distribution of property is the basis of the property distributed.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Roy receives a nonliquidating distribution from Ageless Corporation. Which of the following statements concerning nonliquidating distributions from a corporation are correct?
I.A nonliquidating cash distribution is taxable if the distribution comes from the corporation's current or accumulated earnings and profits.
II.The amount of the dividend on a nonliquidating distribution of property is the basis of the property distributed.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Statement I is correct because nonliquidating cash distributions are indeed taxable to the extent they come from the corporation's current or accumulated earnings and profits. Statement II is incorrect because the amount of the dividend on a nonliquidating distribution of property is the fair market value of the property distributed, not the basis of the property.

Roy Receives a Nonliquidating Distribution from Ageless Corporation