On December 1 of the current year (the declaration date) Z\'s board of directors

Question

On December 1 of the current year (the declaration date) Z's board of directors vote toa pay a $600 dsitribution by mailing checks on December 31 of the current taxable year (the payment date) to shareholders of record on December 15 (the record date). The checks are actually received by shareholders on January 2. Shareholder C is an individual with a stock basis of $120. C sells his stock on December 10 for $1620.

a. The distribution by the corporation will still be taxable to shareholder C

b. The distribution by the corporation will be taxable to the purchaser from shareholder C

c. C's sale of stock will generate capital gain but the portion of the distribution which is dividend will re-characterize the gain on the sale of the stock as ordinary income

d. None of the above

Explanation / Answer

b. The distribution by the corporation will be taxable to the purchaser from shareholder C

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