Question to thread regarding the treatment of an "Extraordinary Cash Dividend" distribution. The company that is doing the distribution is Celeritek Inc. (CLTK) and I want to understand the tax consequences of buying at different times during the "event". Here is the story and conditions:
January 14, 2004 Celeritek announces and Extraordinary Cash Dividend of $4.50, payable March 11, 2004 to holders of record as of February 5, 2004. Celeritek Inc. is then trading at about $7.9, so this is a 57% dividend!
According to nasdaq rules regarding dividends ( nasdaq.com ), distributions over 25% are handled differently and the ex-dividend date is the first business day after the payable date.
Now the series of questions:
Scenario 1: If I bought CLTK on February 2, 2004 and hold until after May 2, 2004 to sell, I have received a Dividend and held for at least 90 days.
Question 1: Am I eligible for 15% tax treatment on this $4.50 dividend distribution?
Question 2: When I sell, will I have a short term loss of about the same magnitude?
It appears from what I have been able to extract from the rules, that buying on February 2 and selling after May 2 captures a dividend at 15% and generates a short term loss of the same size that can offset other short term gains, thereby effectively converting short term gains into long term treatment.
Scenario 2: If I buy February 9, 2004, I will receive with each share of stock, $4.50, until the ex-dividend date.
Question: Is this $4.50 treated as a dividend for tax purposes or do I adjust my basis?
Hope someone knows the answers to these questions.
Ira |
