With respect to paragraph (c), I just want to clarify that my interpretation is that notice has be given within 30 days of the end of the taxable year in which the dividend is PAID. Meaning they have until Jan 2013 to notify shareholders which tax year the 2012 distributions will apply to on the 1120 REIT- something I think would be covered by the releasing the UDI info (?).
Either way, I believe that's the difference between declaring the dividend and the requirement to announce the tax treatment on AGNC's return.
I'm not sure why that straddle rule is there, either. I'm probably missing some way to abuse these rules with a special dividend, but I haven't given it any real thought.
Yessir. That's exactly the part I was looking for and never saw before.
But (c) seems to say they have to announce it in the first 30 days after the end of the calendar year. It's unclear what the difference between announcing and declaring might be.
And there's an odd twist:
If it's a special dividend, both its declaration and its pay date have to be between regular dividend pay dates. Although if they're just applying the regular divs to the extension then that counts too. They just can't straddle the pay date of a regular div with the declaration and pay dates of a special div.
I'm not sure why the rule would have to say that, but it does.
Line 3, Schedule A concerns dividends declared before year end but not physically paid until the following year.
I'm referring to an 858(a) election reported on Line 2 of the same schedule.
Specifically paragraph (a)(2) states the dividend must be declared before the due date, including extensions (9/15) and paid with the first payment following that declaration.
In other words, they can declare a dividend before 9/15 and elect to treat part of that dividend as a distribution of prior year income as long as that money is physically paid both before the end of 2012 and concurrent with the rest of the dividend declared on that date.
They can declare $1.25 on 9/14 and elect to treat X amount as a 2011 distribution on Line 2, Schedule A and use the remainder on their 2012 filing.
The question is where that's allowed. The Schedule A Line 3 instruction on page 13 is all about allowing a dividend paid in January to be counted as paid December 31 for the purpose of that deduction. It doesn't say anything about extending it.
But that's about deducting it in that year, not qualifying them for REIT status. So I can see it being a separate issue, using later dividends to satisfy qualification in the earlier year but still deducting that later dividend in the later year.
I just don't see where it says that.
I suspect it's not in the filing instructions. I recall reading the mREIT qualification rules when the SEC's question about REIT status came up last year, but I don't recall that it went into detail about filing dates. Maybe it was there, and I might be able to Google that up again, but I thought maybe you knew of a third place that had the details.
I'm not sure I follow the question.
They have until the due date of their 2011 tax return (including extensions) to distribute 90% of their 2011 taxable income.
The 2011 return is due 9/15/12, including extension.
So they can designate any distributions paid before 9/15/12 to be distributions of 2011 income.
Hope that helps...
hristopher R. Donat – Sandler O'Neill & Partners LP
--> Hi, just one quick one for you, Gary. You’ve talked about the sustainability of the dividend over the near-term. I’m just – see if I can pin you down on what you mean by near-term, was that quarters or years? And then as a related function, the undistributed taxable income, so I think of that as like a reserved account that will be there at some level in perpetuity or some – or is it an amount that you would be willing to drawdown to zero? Thanks.
Gary D. Kain
--> No, problem. Thanks for the question. Look, what I’ve said was at least over the near-term was the wording, and I really can’t see more specific than what I’ve said with respect to that. Now with respect to the undistributed taxable income, I think what’s really important here is that our taxable income overall let's just go back and talk about where it came from. It came from the fact that our taxable income over the last three years or so has exceeded our dividend. And so, we have basically accrued a lot of taxable income that has yet to be used to pay a dividend, but will be over time. And so I think the best way to think about that is something that materially reduces the risk that taxable income will be a constraint on our dividend. That doesn’t mean that at some point we’re just going to sit there and continue to pay this dividend or raise the dividend until that number goes to zero, that’s not the mindset, there were other factors that go into the dividend. But I think the way you should think about undistributed taxable income, is just the way I described it, and as something that really limits the risk over the near-term, that’s we're going to have a taxable income shortfall under a kind of a pretty wide range of scenarios. The real factor, and what I want to stress, and what I said in the statement was the reason, we feel very good about the dividend is not only as taxable income exceeded our dividend. But clearly our kind of true economic returns have exceeded our dividend as well and that’s why you’ve seen a consistent improvement in book value over time. And it is the combination of those two factors that give us the confidence to make the statement that we made
a two-fer here.
management is NOT subsidizing the issuance of new shares with the overhang, even though it may seem like that. the market is actually mostly informationally efficient, and few Americans can keep their mouths shut.
as for an example.
i bought some shares ex-dividend in june, with the intention to hold until sept ex-dividend, the full quarter. now equate that to me lending you 100 bucks on that same date, and you promising me to repay me in 90 days the full amount of principal, plus $1.25 in interest. move forward 30 days. you borrow another hundred from somebody else, who just happens to be best buds with some investment banker. you promise to repay him the same principal that i will get, AND the same interest i will get, for a 30 day shorter holding period. fair? the law says you get to do it, but i don't have to like it. why else do you think there is so much discussion about SPO's on this board?
the most "fair" method would be at the market(ATM), which includes all capital gains and losses to date plus whatever the market thinks is reasonable for earnings and BV changes, to date, might be.
the current method gives certain investors(SPO buyers) material information that the rest of the market(us) does not really get, except as it impacts share prices the next day.