A redemption of § 306 stock generates dividend income to the shareholder and reduces the corporation's E & P.

Question

Quizplus · Accepted Answer

When a § 306 stock is redeemed, the shareholder receives dividend income, and the corporation's E & P (earnings and profits) decreases. This is because these stocks are considered to be way of distributing accumulated earnings and profits without having to pay corporate-level taxes.

A Redemption of § 306 Stock Generates Dividend Income to the Shareholder