If I receive dividends in more shares of the company,.

a) How are they taxed?
b) When I sell those shares recveived as dividends, is the cost basis zero or the market value at the date I received them?

If you can reference your answer to IRS publication that backs your reply I will appreciate it.

Thanks in advance

It depends. Often stock distributions are not taxed, but are treated esssentially like a stock split - you end up with more shares in the company but with a reduced cost basis per share.

However, some stock distributions are taxable. - typically if it was your choice to receive stock in place of cash, or if the company gave cash to some shareowners and stock to others. For example the dividends that fund the purchase of additional shares in a divident reinvestment plan are taxable. If the stock distribution is taxable it is treated as dividend income. You report the income amount on Schedule B as the fair market value of the shares on the date they were distributed, and you should receive a 1099-DIV form from the stock registrar that will provide the exact value. You treat this lot of stock separately from your origial lot as it has a differebt cost basis and holding oeriod - it has a purchase date = dividend date, and cost basis = FMV as of the dividend date.

For reference see IRS Pub 550: http://www.irs.gov/publications/p550/ch01.html#en_US_2011_publink100010089

Thank you. To give you more informaton, these are shares from a company in Spain. At the time of paying dividends, they ask you to choose if you wish to receive the dividend either in a) Cash (Cash Dividend) or b) in more stock (Stock Dividend). If you choose Stock Diviend, you avoid the 25% Spanish Income tax witholding.

Based on what you mention, and what I also believe I read somewhere before, the cost basis will be the fair market value of this stock at the date of distribution.

a) Is this correct?
b) if so, what date is officially the date of distribution?

Thank you again for your support!

Th

a) Yes.

b) That information should be on your account statement.

a) Yes.

b) That information should be on your account statement.

Thank you!

Gus

Glad to help!