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  • Extraordinary Dividends in a Trust

    From bc@21:1/5 to All on Mon Jan 9 19:22:57 2023
    Has anyone had occasion to deal with an "extraordinary dividend"
    received by a Trust? Specifically, I'm looking at IRC 643(a)(4).

    A "promoter" is asserting the position that "extraordinary
    dividends (as determined under state law) would be allocable to
    principal AND not be taxed. I can agree with the first piece, but
    not the second.
    --
    Bruce Cantor, CPA, JD
    Admitted in Colorado

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  • From John Levine@21:1/5 to cantor2@ix.netcom.com on Mon Jan 9 22:51:39 2023
    It appears that bc <cantor2@ix.netcom.com> said:
    A "promoter" is asserting the position that "extraordinary
    dividends (as determined under state law) would be allocable to
    principal AND not be taxed. I can agree with the first piece, but
    not the second.

    Seems to me that if it is a return of capital, it lowers the basis and
    is not taxed (other than indirectly when the asset is eventually
    sold.) Otherwise as you suspect it's a taxable dividend. I don't think
    we have enough info to tell which it is.

    --
    Regards,
    John Levine, johnl@taugh.com, Primary Perpetrator of "The Internet for Dummies",
    Please consider the environment before reading this e-mail. https://jl.ly

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    << The foregoing was not intended or written to be used, >>
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  • From Stuart O. Bronstein@21:1/5 to John Levine on Tue Jan 10 10:03:09 2023
    "John Levine" <johnl@taugh.com> wrote:

    It appears that bc <cantor2@ix.netcom.com> said:
    A "promoter" is asserting the position that "extraordinary
    dividends (as determined under state law) would be allocable to
    principal AND not be taxed. I can agree with the first piece, but
    not the second.

    Seems to me that if it is a return of capital, it lowers the basis
    and is not taxed (other than indirectly when the asset is
    eventually sold.) Otherwise as you suspect it's a taxable
    dividend. I don't think we have enough info to tell which it is.

    On the IRS website the term "extraordinary dividends" seems to have a
    specific meaning, but it's vague. I wasn't able to figure out if that
    has anything to do with whether or not it's taxable. I hope someone
    else can figure it out better than I could.

    --
    Stu
    http://DownToEarthLawyer.com

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  • From John Levine@21:1/5 to All on Tue Jan 10 17:00:15 2023
    According to Stuart O. Bronstein <spamtrap@lexregia.com>:
    On the IRS website the term "extraordinary dividends" seems to have a >specific meaning, but it's vague.

    A little googlage finds 26 USC 1059 which explains it all if the recipient of the dividend is a corporation.

    An extraordinary dividend is more than 5% for preferred stock, 10% otherwise, with some rules about aggregating over 85 days, or over a year where the total exceeds 20%. It looks like in most cases it's treated as half dividend, half return of capital, with a long list of exceptions.

    26 CFR 1.643(a)-4 has a rule if the recipient is a trust.

    https://www.law.cornell.edu/cfr/text/26/1.643(a)-4

    Otherwise, I don't see anything at all. Guess it's just a dividend
    unless there is some other return of capital rule I don't understand.

    --
    Regards,
    John Levine, johnl@taugh.com, Primary Perpetrator of "The Internet for Dummies",
    Please consider the environment before reading this e-mail. https://jl.ly

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
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