Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?
A)The distribution is a dividend to the extent of the corporation's earnings and profits, then a return of capital, and finally gain from sale of stock.
B)The distribution is a return of capital, then a dividend to the extent of the corporation's earnings and profits, and finally gain from sale of stock.
C)The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's earnings and profits.
D)The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's earnings and profits or a return of capital, followed by gain from sale of stock.

Question

Quizplus · Accepted Answer

The correct priority for the tax treatment of a distribution from a corporation to a shareholder is first as a dividend to the extent of the corporation's earnings and profits, then as a return of capital, and finally as gain from the sale of stock. This reflects the tax code's approach to handling corporate distributions.

Which of the Following Statements Best Describes the Priority of the Tax