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m corp makes a distribution of 15000 to its sole proprietor H. M corp had 8000...

m corp makes a distribution of 15000 to its sole proprietor H. M corp had 8000 EP. H's basis in his stock is 5000. How does H report the transaction: dividends/capital gain?

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Answer #1

To solve this lets understand difference between caspital gain and dividend.

dividend:- it is an appropriation of profits distributed to the investors i.e. distribuition of profits. investment generating returns. i.e. receiving things will be revenue in nature.

capital gain :- it is appreciation in the value of investment i.e. its capital in nature. disposing off the asset for higher value than purchased attracts capital gain

based upon evaluation of above factors distribution from MCORP should be reported as dividend received.

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