Identify which of the following statements is true. A. If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. B. A corporation recognizes gain when distributing money as a dividend to its shareholders. C. The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder. D. All of the above are false.

Question

Business

Yair Frederick

1 March, 11:37

Identify which of the following statements is true. A. If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. B. A corporation recognizes gain when distributing money as a dividend to its shareholders. C. The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder. D. All of the above are false.

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Answers (1)

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Jayson Carey · Answer 1

Correct option is (A)

Explanation:

Distributions from current E&P and thereafter from accumulated E&P are considered as taxable dividend. In case of deficit in current and accumulated E&P account, any corporate distribution is considered as return of capital distribution and not as dividends.

Dividends are taxable, however, return of capital is non-taxable income that reduces cost basis of shareholders.

So, statement A is true. Rest of the statements are false.