Problem 4.2—Stock Distributions—(Fractional Stock—Election to Receive Stock or Property) On June 1, 20x8, X Corporation issued a 10% stock dividend, payable on Common Stock. On the date of the distribution (also June 1, 20x8), there were 1,000 shares outstanding (each worth $100 per share). All shareholders will receive stock.

X Corporation has sufficient earnings and profits to cover any distributions that could be treated as dividends.

a) At the date of the distribution, Mary owned 82 shares in X Corporation. Her basis in the shares prior to the distribution was $50 per share, and she purchased them on January 1, 20x5. She receives 8 shares, plus $20 in cash (in lieu of receiving fractional shares). What are the tax consequences to Mary?

b) Would your answer to part a) change if all the shareholders all had an option to receive either cash or stock (not just on fractional shares)? If so, how?