Larry Tunnell Larry Tunnell is an Associate Professor of Accounting at New Mexico State University in the College of Business Administration and Economics.Shareholders recognize a taxable dividend to the extent a distribution is paid out of corporate earnings and profits (E&P).301, along with guidance on the resulting gain and the basis of stock or securities received (see Prop. 301 (dividend equivalent) distributions and a single model for Sec.302(a) sale or exchange (nondividend equivalent) transactions, regardless of whether Sec. Consistent with the premise that a share of stock is the basic unit of property that can be disposed of, the proposed regulations would, for example, treat a Sec.
Distributions of a C corporation's own stock to its shareholders (stock dividends) are generally tax-free to the recipient shareholders (Sec. The term "stock" includes rights to acquire such stock.
The recipient shareholder's basis in appreciated property received in a distribution equals the property's FMV (Sec. The shareholder's holding period begins on the date of distribution. The regulations are designed to harmonize the tax treatment of economically similar transactions.
In January 2009, the IRS released proposed regulations that provide comprehensive guidance on the recovery of stock basis in distributions under Sec. Accordingly, the regulations adopt a single model for Sec.
If the distribution exceeds E&P, the excess reduces the shareholder's stock basis.
Any amount in excess of the shareholder's stock basis is capital gain (Secs. The amount of the distribution is decreased (but not below zero) by liabilities assumed by the shareholder (e.g., a mortgage on a distributed piece of real estate).