Abner and Barbara are equal co-owners of Abba Corp., a C-Corporation and both shareholders have 500 shares and a basis in their shares of $100,000. Abba corp. has $0 in current E&P and $100,000 of accumulated E&P. Please analyze each of the scenarios below (noting that the facts in each of the following scenarios are independent form one another).
What are the tax consequences to the shareholders if Abba declares a 2 for 1 stock split? What if the company declares a 20% stock dividend (meaning each shareholder receives 1 additional share for every 5 shares they own)? Do the answers to both of these questions change if the shareholders have the option of receiving either the shares or an equivalent amount of cash?