Identify which of the following statements is false.
A)The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock.
B)Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303 redemption.
C)When a stock redemption is considered a sale of stock by the shareholder, the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock.
D)Under Sec. 311, a corporation does not recognize a loss when it distributes property that has declined in value.

Question

Quizplus · Accepted Answer

Explanation: The correct statement is that when a stock redemption is considered a sale of stock by the shareholder, the E&P (Earnings and Profits) of the redeeming corporation is not directly reduced by the FMV (Fair Market Value) of the property used to redeem the stock. Instead, the impact on E&P comes from the recognition of gain or loss by the corporation on the distribution of property, which is governed by other sections of the tax code, not the FMV of the property used in the redemption.

Identify Which of the Following Statements Is False