I was just re-reading the SEC information statement on the spinoff and it describes the spinoff distribution as a "a taxable pro rata special dividend to Newcastle stockholders of record on the record date of the distribution"
Will we have to declare the new shares as a gain on our 2013 taxes as we do with the dividends? I thought the new shares would have an equal depreciation of the current NCT stock...and therefore would not be a net financial gain on paper...
The article is available at SEC website but I cannot post a link...
Dear Newcastle Investment Corp. Stockholder:
We are pleased to inform you that on , 2013, the board of directors of Newcastle Investment Corp. (“Newcastle”) declared the distribution of all the shares of common stock of New Residential Investment Corp. (“New Residential”), a wholly-owned subsidiary of Newcastle, to Newcastle stockholders. New Residential holds or will hold prior to the distribution, directly or indirectly, certain of Newcastle’s residential mortgage related investments such as excess mortgage servicing rights and residential mortgage backed securities.
Upon the distribution, Newcastle stockholders will own 100% of the common stock of New Residential. Newcastle’s board of directors has determined that creating New Residential is in the best interests of the Company.
The distribution of New Residential common stock will occur on , 2013 by way of a taxable pro rata special dividend to Newcastle stockholders of record on the record date of the distribution. Each Newcastle stockholder will be entitled to receive share(s) of New Residential common stock for each share of Newcastle common stock held by such stockholder at the close of business on , 2013, the record date of the distribution. The New Residential common stock will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of New Residential will be issued. If you would otherwise have been entitled to a fractional share of New Residential common stock in the distribution, you will receive the cash value of such fractional share instead.
Stockholder approval of the distribution is not required, and you are not required to take any action to receive your New Residential common stock.
Following the distribution, you will own shares in both Newcastle and New Residential. The number of Newcastle shares you own will not change as a result of this distribution. Newcastle’s common stock will continue to trade on The New York Stock Exchange under the symbol “NCT.” New Residential intends to apply to have its common stock authorized for listing on The New York Stock Exchange under the symbol “NRZ.”
The information statement, which is being mailed to all holders of Newcastle common stock on the record date for the distribution, describes the distribution in detail and contains important information about New Residential, its business, financial condition and operations. We urge you to read the information statement carefully.
We want to thank you for your continued support of Newcastle and we look forward to your future support of New Residential.
Whether or not the distribution is taxable to you is going to depend on a few things but here is a simple explanation.
For tax purposes, if the company has accumulated earnings and profits (which might include recognizing a gain at the company level on the distribution), some or all of the distribution could be taxable to the shareholder. My guess is that most of it will be be a return of capital. Why? Because I think the cash distributions for 2013 will suck up most the earnings and profits.
Here is what they disclosed in the last prospectus about the tax effects of the spinoff. There is also a paragraph about the effect of that stock offering on their NOL (it was a change of control that will limit the amount of their NOL going forward)