If C corporations retain their after-tax earnings, when will their individual shareholders be taxed on the retained earnings?
A)Shareholders will be taxed when they sell their shares at a gain.
B)Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings.
C)Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return.
D)None of the choices is correct.

Question

Quizplus · Accepted Answer

Shareholders of C corporations will not be taxed on the retained earnings until they sell their shares at a gain. At that point, they will be subject to capital gains tax on the portion of the gain that is attributable to the retained earnings.

If C Corporations Retain Their After-Tax Earnings, When Will Their