If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same regardless of whether the distribution is classified as a dividend or as a stock redemption.

Question

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The tax consequences to shareholders can differ significantly depending on whether a distribution is classified as a dividend or as a stock redemption. Dividends are typically taxed as ordinary income to the shareholders, while stock redemptions may be treated as a sale or exchange, potentially qualifying for capital gains treatment, depending on specific circumstances.

If a C Corporation Has Earnings and Profits at Least