Which of the following statements is true?
A)All stock redemptions are treated as exchanges for tax purposes.
B)A stock redemption not treated as an exchange will automatically be treated as a taxable dividend.
C)All stock redemptions are treated as dividends if received by an individual.
D)A stock redemption is treated as an exchange only if it meets one of three stock ownership tests described in the Internal Revenue Code.

Question

Quizplus · Accepted Answer

A stock redemption is only treated as an exchange for tax purposes if it meets one of three stock ownership tests described in the Internal Revenue Code. If the redemption does not meet one of these tests, it will be treated as a taxable dividend. Therefore, statement A is false and statement B is partly true but does not provide the whole picture. Statement C is also false because the tax treatment of a stock redemption depends on various factors such as the type of entity redeeming the stock and the holding period of the stock.

Which of the Following Statements Is True