When does the double taxation problem faced by corporations exist?
A) Whenever a corporation earns a proﬁt, pays taxes on that proﬁt, and then pays interest to its bondholders.
B) Whenever a corporation earns a proﬁt, pays taxes on that proﬁt, and then pays dividends to its stockholders who pay personal taxes.
C) Whenever a corporation earns a proﬁt and pays taxes on that proﬁt.
D) Whenever a corporation earns a proﬁt, pays taxes on that proﬁt, and then pays dividends to its tax-exempt shareholders.
E) Whenever stockholders are paid a dividend and are taxed on that dividend income.

Question

Quizplus · Accepted Answer

The double taxation problem faced by corporations exists when a corporation earns a profit, pays taxes on that profit, and then pays dividends to its stockholders who pay personal taxes. In this case, the same income is being taxed twice - once at the corporate level and again at the individual level.

When Does the Double Taxation Problem Faced by Corporations Exist