Which of the following stock distributions would be tax-free to the shareholder?
A)A 2-for-1 stock split to all holders of common stock.
B)A stock distribution where the shareholder could choose between cash and stock.
C)A stock distribution to all holders of preferred stock.
D)A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.

Question

Quizplus · Accepted Answer

A 2-for-1 stock split does not change the value of the shareholder's investment, and therefore is not taxable. Both B and C involve a choice for the shareholder, which generally means that there is a taxable event when choosing to receive cash rather than stock. D includes both a stock split and a stock distribution, but the preferred stock distribution is not necessarily tax-free. Only the 2-for-1 stock split is guaranteed to be tax-free to the shareholder.

Which of the Following Stock Distributions Would Be Tax-Free to the Shareholder