Which of the Following Is an Incorrect Statement Regarding the Tax

question 68

Multiple Choice

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?

• A) No loss is recognized on the sale.
• B) The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
• C) The issuing corporation reduces its E & P by the amount of sales proceeds.
• D) Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%) maximum tax rate that applies to dividend income.
• E) None of the above.

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Definitions:

Property Value

The monetary worth that is assigned to a property, based on factors such as market conditions, location, and the state of the property.

Creditor Beneficiary

A third party that benefits from a contract made between two other parties, wherein the promisee's intention is to provide a benefit to the creditor beneficiary.

Intended Beneficiary

An individual or entity that is not a direct party to a contract but stands to benefit from its performance.

Rights

Legal, social, or ethical principles of freedom or entitlement.