On Feb. 1, 2018, the board of directors of X Corp. declares a dividend of $2 per share to shareholders of record as of March 1, 2018, payable as of April 1, 2018. Taxpayer-A transfers 200 shares to Taxpayer-B by gift on Jan. 1, 2018 and sells another 200 shares to Taxpayer-B on Feb. 15, 2018. According to the United States District Court, as discussed in class, how much, if any, dividend income must Taxpayer-B realize in 2018 (both Taxpayer-A and Taxpayer-B are cash basis) ? a.$400b. $0c. $800d. none of the choices are correcte. $200

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9 October, 12:56

On Feb. 1, 2018, the board of directors of X Corp. declares a dividend of $2 per share to shareholders of record as of March 1, 2018, payable as of April 1, 2018. Taxpayer-A transfers 200 shares to Taxpayer-B by gift on Jan. 1, 2018 and sells another 200 shares to Taxpayer-B on Feb. 15, 2018. According to the United States District Court, as discussed in class, how much, if any, dividend income must Taxpayer-B realize in 2018 (both Taxpayer-A and Taxpayer-B are cash basis) ? a.$400b. $0c. $800d. none of the choices are correcte. $200

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Tally · Answer 1

c. $800

Explanation:

Taxpayer B was the owner of first 200 shares on Jan 1, 2018. So, the dividend declared by the company will become taxable (200 * $2 = $400).

Company declared another dividend on Feb 1, 2018. the declaration stated that the dividend of $2 per share would be payable to shareholders who are in record on March 1, 2018. Taxpayer A transferred 200 shares to Taxpayer B on Feb 15, 2018 so Taxpayer B was in record of Company on March 1, 2018. Hence, B has to pay tax on dividend of another 200 shares (200 * $2 = $400)

so, $400 + $400 = $800