Are Non-Cash dividends taxable

[joegarcia]

if a client receives a non-cash dividend on stock they already own, is that taxable?

[pamdory]

How was the dividend paid?

Or is it a non-dividend distribution?

[IRonMaN]

Did they get a new car?  The more detail you provide in a question increases your odds of getting a more correct answer.

[joegarcia]

Non-Cash Dividend is in the form of stock (company issues additional stock).

[joegarcia]

The non-cash dividend was stock in the company.

[pamdory · Accepted solution]

That's a stock dividend.  Usually stock dividends aren't a taxable event, it just affects the basis of the shares.  If you owned 10 shares you paid $100 for, you get a stock dividend of 1 share.  The per share basis goes from $10/sh to $9.09/sh (11 shares/$100).

There are exceptions that can create a taxable event.  Like if the shareholder chooses to receive add'l shares in lieu of cash, or the dividend shares affects the SH proportionate interest and some preferred stock distributions.  Refer to Sec. 305(b).

[joegarcia]

Thanks for the guidance!