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

The dividend is taxable to the extent of the company's earnings and profits ($9,000). The remaining $3,000 is a return of capital, reducing Keisha's basis in the stock, and is nontaxable.

Keisha Owns 100% of DEF Company and Has a Basis