Abel owns all the stock of both Beige Corporation and Brown Corporation. Both corporations have significant amounts of E & P. Abel sells some of his stock in Beige to Brown Corporation. Abel will not have dividend income as a result of the sale of Beige stock.

Question

Quizplus · Accepted Answer

When a shareholder sells stock to a related corporation, such as one they control, the transaction can be recharacterized as a dividend distribution if the selling corporation has significant earnings and profits (E & P).

Abel Owns All the Stock of Both Beige Corporation and Brown