This year the shareholders in Lucky Corporation can choose between receiving an additional 100 shares of stock or cash of $100. Lucky's shareholders will be taxed on the distribution if Lucky has sufficient E&P.

Question

Quizplus · Accepted Answer

Shareholders will be taxed on the distribution only if Lucky Corporation has sufficient earnings and profits (E&P) to cover the distribution. This is because distributions from E&P are considered dividends, which are taxable to the shareholders, while distributions from other sources like capital surplus are not taxable to the shareholders. Therefore, it is important to consider the tax implications of the distribution before making a choice between receiving additional shares or cash.

This Year the Shareholders in Lucky Corporation Can Choose Between