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Technology Stocks : Qualcomm Incorporated (QCOM)
QCOM 159.42-1.2%Jan 16 9:30 AM EST
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To: JMD who wrote (10938)5/28/1998 1:04:00 PM
From: Snake  Read Replies (2) of 152472
 
I will answer the taxable spin-off question for you. For tax purposes, Section 355 of the Internal Revenue Code dictates the tax treatment. Part of the requirements are that the assets distributed are an active trade or business. Part of that requirement is that such trade or business has been actively conducted for a 5 year period ending on the date of distribution.

I would speculate that QCOM's business it is spinning off does not meet the 5 year requirement and thus is a taxable distribution. Much of the businesses have only been around for a limited time.

Another requirement is that either all the stock of the new company or at least 80% is distributed to shareholders. I can't recall how much QCOM is planning on keeping, but this could be a reason for the taxability of the distribution, albeit, under QCOM's control, unlike the above which QCOM can't control.

AT&T's spin of LU and Pepsi's spin of its food service business both had a business it had been carrying on for many years, and I believe they spun 100%, although I may be wrong.

I would also venture that the distribution is only taxable to the extent QCOM has earnings and profits (accumulated taxable income). I read that there was $4/share of E&P, so to the extent the new business is valued at > $4, it will be tax free.

Hope this helps,

Bill
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