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Corrections Corporation of America Message Board

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  • newMK newMK Aug 2, 1999 10:20 AM Flag

    d%&$** unions

    Score one for your common sense. The rule I gave
    was too simplistic, and essentially wrong. The key to
    whether a stock or stock rights distribution is taxable
    (out of E&P)is apparently whether the shareholders'
    respective interests are changed.

    Thus, if some of
    the shareholders can elect to take stock or cash, and
    some actually take cash, the stock is treated as a
    taxable distribution.

    If some shareholders are
    given common stock, and others preferred stock, it's
    taxable.

    If convertible preferred is distributed, it's
    taxable (unless it can be proved somewhow that it doesn't
    result in a disproportionate distribution).

    Now,
    back to common sense. As far as the IRS goes, they
    would just as soon have ANY distribution taxed as a
    dividend. Anything that triggers the double tax is fine
    with them. The tax law, not the IRS, gives safe havens
    for certain stock distributions.

    It's fuzzier
    with a REIT. If a company is trying to get any kind of
    special (favored) tax status, the IRS will interpret
    everything in a way to deny that status, if possible. Thus
    in PZN's case, if there is something fuzzy or
    subjective about the E&P distribution, the IRS would have to
    decide whether it would rather kill the REIT status or
    get the double tax.

    Probably a moot
    discussion, as they will pay the cash and keep it
    simple.

    P.S. Your earlier point about the $100MM investor
    wanting to get in AFTER the special dividend makes a lot
    of sense - lower price, more shares.

 
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