Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain, because of the dividends received deduction.

Question

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The dividends received deduction allows corporate shareholders to deduct a portion of the dividends they receive from other corporations from their taxable income. Therefore, corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain, as it would qualify for the dividends received deduction and result in a lower tax liability.

Corporate Shareholders Would Prefer to Have a Gain on a Reorganization