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 have dividend income as a result of the sale of Beige stock.

Question

Quizplus · Accepted Answer

When a shareholder sells stock to a corporation that they control, the transaction can be recharacterized as a dividend if the corporation has sufficient earnings and profits (E&P), resulting in dividend income for the shareholder.

Abel Owns All the Stock of Both Beige Corporation and Brown