Keisha owns 100% of DEF Company and has a basis of $10,000 in its stock.DEF has earnings and profits of $9,000 and distributes a cash dividend to Keisha of $12,000.Keisha has a:

Question

Quizplus · Accepted Answer

Since Keisha's basis in the stock is only $10,000 and she received a cash dividend of $12,000, $3,000 of the dividend is considered a return of capital and is therefore nontaxable. The remaining $9,000 of earnings and profits ($12,000 - $3,000) is considered a taxable dividend. Keisha does not have a capital gain as a result of this transaction.

Keisha Owns 100% of DEF Company and Has a Basis