b. Complete the internal memo regarding Raptor Corporation which outlines the issue, analysis, and conclusion. TAX FILE MEMORANDUM DATE: November 16, 2021 FROM: Heywood R. Floyd SUBJECT: Raptor Corporation Based on the facts summarized in a letter (dated November 13) from the president of Raptor Corporation, the following occurred: Raptor Corporation declared a dividend permitting its shareholders to elect to receive either 9 shares of cumulative preferred stock or 3 additional shares of Raptor common stock for every 10 shares of common stock held at the time of the dividend declaration. One shareholder elected to receive preferred stock, while all other shareholders chose the common stock dividend. At issue: Is the distribution of a stock dividend taxable if some of the shareholders elect to receive preferred stock while others elect to receive common stock? Analysis: Code 305 governs the taxability of stock dividends. It provides that stock dividends are not taxable if they represent pro rata distributions on common stock. However, this general rule has five exceptions, one of which applies in the present situation. A distribution of preferred stock to some common shareholders and of common stock to other common shareholders is a taxable event. Conclusion: The shareholders have taxable income equal to the fair market value of the stock dividend.