Darryl a cash basis taxpayer gave 1000 shares of Copper Comp

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2011. Copper Company is a publicly held company that has declared a $1.00 per share dividend on September 30 every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $1.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10. The daughter received the $1,000 dividend on October 18, 2011. How does this information impact who must recognize the dividend as income?

Darryl must recognize the $1,000 dividend as his income because he knew the dividend would be paid.

Darryl must recognize $750 of the dividend because he owned the stock for three fourths of the year.

Darryl must recognize the income of $1,000 because he constructively received the $1,000.

The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000.

None of the above

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Solution

fourth option is correct:

The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000.

Dividend income is recognised when the right to receive dividend is established.

Since on the record date, daughter is holding shares, she has the right to receive dividends and she must recognise the income from dividends.