Question

What is the tax impact to a C corporation or an S corporation when it makes a property distribution to a shareholder?

1) Recognizes either gain or loss
2) Does not recognize gain or loss
3) Recognizes gain but not loss
4) Recognizes loss only

Answer 1

A C corporation recognizes gain but not loss upon making a property distribution to a shareholder, which is likewise generally true for an S corporation, depending on circumstances. Shareholders receive dividends and can realize capital gains on their investments in the corporation.

Step-by-step explanation:

When a C corporation makes a property distribution to a shareholder, it recognizes gain but not loss, which means that the correct answer to the student's question is option 3. For an S corporation, the tax impact can depend on the specific circumstances including the corporation's basis in the property, but generally, S corporations also recognize gain but not loss on distributions.

A share of stock represents an ownership interest in a company, and firms only receive money from a stock sale when the stock is initially offered to the public or when the company issues new shares. Dividends are distributions made to shareholders from a company’s profits, and a capital gain is the increase in value of an asset or investment above its purchase price.

Corporate taxes, property taxes, payroll taxes, and social security taxes are often levied on both C corporations and individuals in different scenarios, depending on the specific business structure and income circumstances.