Problem:
The stock of Crandall Corporation is regularly traded over the counter. However, 75% is owned by the founding family and a few of the key executive officers. It has had a cash dividend record of paying out annually less than 5% of its earnings and profits over the past 10 years. It has, however, declared a 10% stock dividend during each of these years. Its accumulated earnings and profits are beyond the reasonable current and anticipated needs of the business. Which of the following is correct? A. The shareholders can compel the declaration of a dividend only if the directors' dividend policy is fraudulent. B. The Internal Revenue Service cannot attack the accumulation of earnings and profits since the Code exempts publicly held corporations from the accumulation's provisions. C. The fact that the corporation was paying a 10% stock dividend, apparently in lieu of a cash distribution, is irrelevant insofar as the ability of the Internal Revenue Service to successfully attack the accumulation. D. Either the Internal Revenue Service or the shareholders could successfully obtain a court order to compel the distribution of earnings and profits unreasonably accumulated.