9. Which of the following statements best describes the priority of the tax trea

Question

9. 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.

Explanation / Answer

The correct answer is option (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.

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