Which one of the following statements is false? a. If a debt instrument has too

Question

Which one of the following statements is false?

a. If a debt instrument has too many features of stock, the IRS may treat it as a form of stock.

b. If the IRS reclassifies debt as a form of stock, principal and interest payments will be considered dividends.

c. The IRS has the authority to characterize corporate debt as wholly equity or as part debt and part equity.

d. With the current 20% ceiling on taxing dividend income, the IRS is more inclined to convert interest income to dividend income than when dividend income was taxed at the taxpayer’s marginal tax rate.

e. None of the above.

Explanation / Answer

Correct option is "D" - The IRS is less inclined to convert interest income to dividend income as it would produce tax benefi to individual investors .

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