If C corporations retain their after-tax earnings, when will their shareholders be taxed on the retained earnings?
A) Shareholders will be taxed when they sell their shares at a gain
B) Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings
C) Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return
D)None of these

Question

Quizplus · Accepted Answer

Shareholders will be taxed on retained earnings when they sell their shares at a gain. This is because the retained earnings increase the value of the corporation, which is reflected in the stock price. When the shareholder sells their shares at a higher price than what they originally purchased them for, they will have a capital gain that will be taxed.

If C Corporations Retain Their After-Tax Earnings, When Will Their