The gains shareholders recognize as a part of a corporate reorganization may be treated a dividend to the extent of the corporation's E & P.

Question

Quizplus · Accepted Answer

This is based on the tax law provisions under Internal Revenue Code section 356(a)(2). If the shareholder receives gain as a result of a corporate reorganization (such as a merger or acquisition), the gain may be treated as a dividend to the extent of the corporation's earnings and profits (E&P). This means that the gain would be taxable as a dividend to the shareholder. However, if the gain exceeds the corporation's E&P, it may be treated as a capital gain instead.

The Gains Shareholders Recognize as a Part of a Corporate