Tim and Tom are equal half owners of Tea Inc. common stock. Tim received nonvoting common stock in exchange for a patent he held on a recipe for tea. Tim and Tom felt that to keep the ownership equal, Tom should receive preferred stock with the same value. Which of the following is true?

A.Because the nonvoting common stock Tim received was not issued on preferred stock, it is a tax-free stock dividend.

B.Because the stock distribution is made to Tim in return for the patent rather than because of his stock ownership, it is not a tax-free stock dividend.

C.Even though one shareholder received common stock and one received preferred, the stock dividends can be tax-free.

D.The nonvoting common stock Tim received and the preferred stock Tom received are tax-free stock dividends, since their value was equal.