Compare the tax consequences to the shareholder and the distributing corporation

Question

Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions: ordinary dividends, stock redemptions, and complete liquidations. Complete the following paragraph.

Ordinary dividend distributions require the distributing corporation to recognize ____________  

(gain/loss/gains but no loss/loss but no gains) when distributing noncash property as a dividend.

The shareholder reports _____________________________________________when the distribution comes from earnings and profits (E&P).

Stock redemptions require the distributing corporation to recognize _______________________ (gain/loss/gains but no loss/loss but no gains) when distributing noncash property.

The shareholder reports ___________________________________________.

Complete liquidations require the distributing corporation to recognize _____________________ (gain/loss/gains but no loss/loss but no gains) when distributing noncash property unless one of a series of limited exceptions applies to loss recognition.

The shareholder reports ______________________________________.  

Explanation / Answer

ORDINARY DIVIDENDS Shareholder: qualified dividends are subject to the maximum 15% capital gains tax rate. Corporation: recognize a gain when distributing dividends.

STOCK REDEMPTIONS Shareholder: recognize a dividend or capital gain depending on the nature of the transaction.

Corporation: recognize a gain.

COMPLETE LIQUIDATIONS Shareholder. Gain or loss is recognized. Gain/loss that is recognized is the difference of the FMV of the property distributed and the shareholder's adjusted basis.

: Corporation: recognize a gain or loss

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