Tax Facts

7504 / How is a shareholder taxed if the corporation pays a dividend by distributing its own bonds, notes, or other obligations?

A dividend paid in bonds, notes, or other obligations of the distributing corporation is treated as a dividend “in kind” and the obligations are treated as property received in a dividend distribution.1 See Q 7503 for the taxation of dividends “in kind.”

1.   IRC § 317(a); Treas. Reg. § 1.317-1.

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