Which of the Following Is an Incorrect Statement Regarding the Tax

question 34

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 issuing corporation reduces its E & P by the amount of sales proceeds.
• C)The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
• 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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