During the year, CDE Corporation earned enough profits to pay dividends to its shareholders. CDE is a C corporation. What are the tax consequences of this distribution? (a) The corporation will increase their earnings and profits by the amount distributed. (b) The corporation will reduce its taxable income by the amount distributed to the shareholders. (c) The corporation will pay a flat tax of 21% on the amount distributed. The shareholders also include their dividends received in taxable income. (d) There are no direct tax consequences for either the corporation or the shareholders.
During the year, CDE Corporation earned enough profits to pay dividends to its shareholders. CDE is a C corporation. What are the tax consequences of this distribution? (a) The corporation will increase their earnings and profits by the amount distributed. (b) The corporation will reduce its taxable income by the amount distributed to the shareholders. (c) The corporation will pay a flat tax of 21% on the amount distributed. The shareholders also include their dividends received in taxable income. (d) There are no direct tax consequences for either the corporation or the shareholders.
Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 16DQ
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During the year, CDE Corporation earned enough profits to pay dividends to its shareholders. CDE is a C corporation. What are the tax consequences of this distribution?
(a) The corporation will increase their earnings and profits by the amount distributed.
(b) The corporation will reduce its taxable income by the amount distributed to the shareholders.
(c) The corporation will pay a flat tax of 21% on the amount distributed. The shareholders also include their dividends received in taxable income.
(d) There are no direct tax consequences for either the corporation or the shareholders.
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