Which of the Following Statements Is True

question 60

Multiple Choice

Which of the following statements is true?

• A)All stock redemptions are treated as exchanges for tax purposes.
• B)A stock redemption not treated as an exchange will automatically be treated as a taxable dividend.
• C)All stock redemptions are treated as dividends if received by an individual.
• D)A stock redemption is treated as an exchange only if it meets one of three stock ownership tests described in the Internal Revenue CodE.To be an exchange, one of the stock ownership tests described in §302(b) must be satisfied.Stock redemptions not treated as exchanges are tested under §301 and could be a tax-free return of capital or gain from sale of stock.

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Definitions:

Firm Value

The total value of a business, including its equity and debt components, considered in the context of valuation or acquisition.

Hedge

A financial strategy used to reduce or offset the risk of adverse price movements in an asset.

Price Risk

The risk of a change in the market price of securities affecting an investor's portfolio value.

Bushels

A unit of volume that is used in the United States for measuring agricultural commodities, such as grains.