Replies to post #9665 on China Unlimited

[RealDutch]

It says here that stock dividends are tax-free, in our case. And who is going to withhold what? I don't see it happening.

http://www.thetaxadviser.com/issues/2014/sep/case-study-sept2014.html

Taxation of Stock Dividends

Distributions of a C corporation's own stock to its shareholders (stock dividends) are generally tax-free to the recipient shareholders (Sec. 305(a)). The term "stock" includes rights to acquire such stock. Tax-free treatment apparently applies to unissued and treasury stock, as well as common, preferred, voting, or nonvoting stock. Despite this general rule, stock dividends can be taxable if (Sec. 305(b)):

Shareholders have an option to receive cash or other property instead of stock;
Some shareholders receive cash or other property, and others receive stock and increase their proportionate ownership;
Some shareholders receive preferred stock while others receive common stock;
Shareholders receive distributions with respect to preferred stock; or
Shareholders receive distributions of convertible preferred stock.