C Corp owns marketable securities, one of them being General Conglomerate. They purchased 1000 shares for $20,000. G Conglomerate has a "dividends reinvestment" plan, and C Corp is agreeable to it.
During the course of the fiscal year, Conglomerate paid $1000 in dividends to C Corp. They qualify for a 70% Dividends Received Exclusion. The $1000 was reinvested into G Conglomerate, at $20/share (same price as original purchase price so as to not needlessly complicate this example).
C Corp had sufficient profits to allow the 70% exclusion for the year.
C Corp now owns 1050 shares that they have purchased for $21,000.
What is their basis in G Conglomerate?
a) C Corp has paid $21,000 for 1050 shares. Their basis is $21,000.
b) C Corp was not taxed on the full $1000, but only on $300. Their basis is thus the initial $20000 plus $300, or $21,300.
c) Other (please explain).
During the course of the fiscal year, Conglomerate paid $1000 in dividends to C Corp. They qualify for a 70% Dividends Received Exclusion. The $1000 was reinvested into G Conglomerate, at $20/share (same price as original purchase price so as to not needlessly complicate this example).
C Corp had sufficient profits to allow the 70% exclusion for the year.
C Corp now owns 1050 shares that they have purchased for $21,000.
What is their basis in G Conglomerate?
a) C Corp has paid $21,000 for 1050 shares. Their basis is $21,000.
b) C Corp was not taxed on the full $1000, but only on $300. Their basis is thus the initial $20000 plus $300, or $21,300.
c) Other (please explain).
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