Those who own CLNH need to consider the following possibility:
1-CLNH distributes income on a K1, which was OK when they paid a cash dividend. Now that (ghost) income is without a cash dividend, which also increases tax basis. CLNH does NOT pass the tax loss carryover to investors.
2-CLNH reported $2.68 EPS for Q12010. Annualized is $10.72 (4X).
3-Example for 20K shares purchased at $.20 for $4,000, held 12 months, sold at $.45 for $9,000, and profit of $5,000. You also may have to report and pay tax on (ghost) income of $208,400 (20,000 shares X $10.72). You can add the $208,400 to your cost of $4,000 for a capital loss of $199,800. But you can only deduct $3,000 per year from other income. Some losses might reduce this, but the exposure is staggering.
Questions: What is wrong with this analysis? Can you afford to own CLNH? Will Ross who owns mostly preferred shares receive a share of income on preferred? Did he stick it to common shareholders again by making them pay tax on earnings while he retains voting control? Would a company screw their shareholders in this way? CLNH would.
That depends entirely on the K-1 that you get from CLNH as of 12/31/10.
If as I suggested CLNH allocates a large amount of income (that you did not receive as there is no dividend), your tax basis will be significantly increased so that you have a large capital tax loss due to a tax basis much greater than your purchase price. If that exceeds your other taxable gains, you can only deduct $3,000 of the capital loss against other income each year.
The worst part is that you may have to pay tax on the 2010 income that CLNH allocated to you.
I cannot say that will happen for sure, but I believe it is a definite possibility, enough so that I may make an extra tax deposit to cover the possibility.
We will not know for sure until we get the K-1, and I doubt that CLNH will tell you now, even if asked at the CC. They will dodge any such question as: "ask your tax advisor." Who can predict without that K-1?
First, even if they are well intentioned, they often don't know what they are talking about. Second, they may not be well intentioned and may be trying to alarm investors in order to drive the stock price down.
If you want advice, go to a reputable accountant or tax advisor.
Virtually all that income is from reversals of reserves that they booked as losses in the past, which they didn't pass on to shareholders. Can they really pass that income on to us when they reverse a loss that they didn't pass on to us? I'm not an accountant, but this wouldn't make any sense to me. And if they do pass it all on, I could be ruined, since I have a very large amount of low-priced shares. If such is allowed, it could allow a malicious company to alternatively book loan-loss reserves and then reverse them, just to screw the limited partners. It's hard for me to believe that is legal.