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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Art Bechhoefer who wrote (30993)	1/10/2003 11:38:16 AM
From: kech	Read Replies (1) \| Respond to of 196543

Art- Not sure why you think there is a problem of calendar year end. Currently dividend payments are associated with fiscal year end and quarterly periods. Why wouldn't the same thing occur under this system? As far as a mess, either they report 1099's with taxable and taxfree dividends or they include the taxfree dividend as a basis raising increase in the price you purchased the stock. Seems like this is what computers are for. <g> As far as this just proposing SOMETHING, it is actually based on a Treasury Plan developed in 1992 and helps address all three of the following problems, while simply allowing deductibility of dividends to corporate taxes only addresses 1) below. What are trying to do is to accomlish all three features: 1) Treat equity financing better relative to debt financing (i.e. letting shareholders have better tax treatment on dividends). 2) Reduce the benefits on 1) to the extent that there is a large difference between IRS books for the company and the G AAP reporting of the company. Thus where this difference is large, the ability to deduct dividends is reduced. 3) Payments of Foreign taxes will be treated the same way as US taxes and will allow firms to increase the tax deductibility of dividends to shareholders. The choice is treated by NYT in the following way: "A company that did not pay out all the dividends that it could pay on a tax exempt basis -- choosing instead to reinvest the money in its business -- would be able to decleare a deemed dividend. That deemed dividend would be treated as if the shareholder had immediatetely reinvested it and would allow the investor to claim she had spent that extra money buying the stock. That would provide an investor with a tax break when the stock was sold." And also: "Just how much a company could pay in tax-free dividends would be based on the taxes it actually paid. For example, assume a company paid $35 million in federal income taxes. Because there is a 35% corporate income tax rate, that would indicate it had a $100 million pretax profit, and had $65 million it could distribute in tax-free dividends. Any more payments would be taxable. If on the other hand, the company did not pay federal income taxes, then all its dividends would be taxable." In addition, any company that paid some taxable and some non-taxable would have to do so for all shareholders. I.e. it could not assert that the tax-free dividends went to one group, and the taxable to another group, like preferred shareholders or owners of one class of common stock. "On the other hand, if the company chose to pay out a part just $15 million in cash dividends, it could declare a deemed dividend of $50 million. The shareholders would then be able to increase their basis. For example, if that deemed dividend came to $1 a share, an investor who had paid $40 a share for the stock would see his tax basis raised to $41. When the stock was sold, any capital gain would be only the amount above $41." They expect companies to pay out as real or deeemed dividends, the entire amount they are eligible to pay out every year. If not then these will be considered as deemed dividend reserves that will allow shareholders to expect these to be paid out in the future.