Extraordinary payouts compel basis changes
Article Abstract:
Dividend capture techniques are used by corporate taxpayers to increase the rate of return on their portfolio of investments. Corporations can gain significant tax savings by reducing their basis by distributing an extraordinary dividend, namely a unique distribution that is uniquely large and nonrecurring. Section 1059 of the Internal Revenue Code defines an extraordinary dividend for both preferred stock and stock other than preferred. For preferred stock, an extraordinary dividend is a dividend of 5% or more of the adjusted basis of the related share of stock, while for stock other than preferred, it is equivalent to 10% or more of the related share of the adjusted basis of the stock.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1990
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Canceled debt need not result in taxable income
Article Abstract:
Section 61(a)(12) of the Internal Revenue Code stipulates that income resulting from the discharge of debts typically is included in gross income. A ruling by the Third Circuit Court of Appeals has held that cancelled debt does not necessarily result in taxable income. Zarin, a gambler, settled a $3 million debt with Atlantic City casinos for $500,000. The IRS argued that Zarin recognized $2.5 million, but the Circuit Court held that since gambling debts are not legally enforceable, for tax purposes the amount of the settlement was equal to the amount of the debt.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1991
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