Question

Sandy, a cash method of accounting​ taxpayer, has a basis of​ $46,000 in her 500 shares of Newt Corporation stock. She receives the following distributions as part of​ Newt's plan of liquidation.

March​ 31, 2017
​$10,000
July​ 15, 2017
​10,000
November​ 15, 2017
​10,000
January​ 15, 2018
​10,000
The amount of the final distribution is not known on December​ 31, 2017. What are the tax consequences of the​ distributions?

Answer 1

The tax consequences of the distributions for Sandy, a cash method of accounting taxpayer, depend on whether the distributions are considered a return of capital or a taxable dividend. Sandy should consult with a tax professional to determine the specific tax consequences of the distributions.

Step-by-step explanation:

The tax consequences of the distributions for Sandy, a cash method of accounting taxpayer, depend on whether the distributions are considered a return of capital or a taxable dividend. If the distributions are a return of capital, they would reduce Sandy's basis in the stock. If the distributions are considered a taxable dividend, Sandy would be required to include them in her taxable income.

Since the amount of the final distribution is not known on December 31, 2017, it cannot be determined at this time whether the distributions will be considered a return of capital or a taxable dividend. Sandy should consult with a tax professional to determine the specific tax consequences of the distributions.