The Serenity Corporation distributes $200,000 in cash to its shareholders during 2019. Accumulated earnings and profits are $80,000 as of January 1, 2019. Current earnings and profits for 2019 are $84,000. Jonas, the sole shareholder of Serenity Corporation, has a basis of $48,000 in his stock. What is the tax effect of the distribution for Jonas?

A. Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000.
B. Jonas will recognize ordinary income of $84,000, capital gain of $80,000, and a tax-free recovery of capital of $36,000.
C. Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000.
D. Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000.
E. Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000.


Answer: C

Business

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