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Linn Co, LLC Message Board

  • tcm3112 tcm3112 Dec 11, 2013 11:28 AM Flag

    Dividends ????

    If I understand correctly, dividends distributed are not "ordinary" and when you receive the distribution you must reduce your basis in LNCO by the same amount. That is, a $3 distribution will decrease your basis $3 so when you sell LNCO you end up paying more taxes (assuming a profit). Hummm!

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    • no_need_no_stinkin_badges no_need_no_stinkin_badges Dec 16, 2013 4:52 PM Flag

      It is called ROC- return of capital.
      You do not pay current ordinary income taxes on dividends.
      But you do pay capital gains taxes when you sell.

    • NOT a problem, you need to understand how MLPs work.
      Please note, LNCO is not an MLP, it is setup for IRAs, etc.
      Since you have to include depression and other expensive, it is better for ROC in the long run, as the long term capital gain rate, may be less then the Dividend tax rate.

    • According to LNCO's 2012 Form 8937 tcm3112 is correct. Assuming the distributions for 2013 will have the same tax treatment as 2012, the 2013 distribution will be a return of capital (ROC). However, lpitzen may also be correct, we'll just have to see what the accountants determine early next year. I think more likely it will all be a ROC as that is how LNCO is set up. There are many allowances passed thru from LINE (depreciation and depletion) that account for the ROC.

      • 2 Replies to winmore_98
      • Thank you for confirming what I thought. Maybe the distribution treated as ROC vs Ordinary explains the differential between LINE and LNCO. I have invested in many MLP's and understand the benefits and IRA obstacles of such ownership but LNCO's treatment of its distribution is somewhat unusual. To me LNCO's distribution is less valuable. What say you?

      • I was mistaken. This is more or less correct. Linnco reports on Form 1099-DIV instead of a K-1, but they play accounting games so that a substantial portion of the dividends are treated as return of capital. My apologies.

        Sentiment: Buy

    • lpitzen Dec 12, 2013 2:43 AM Flag

      If you receive $2.90 per share this year from LNCO the first $1.32 (EPS- ttm) is treated as ordinary income or qualified dividend and the remainder ($1.58) is treated as return of capitol and decreases your basis by $1.58. (maybe)

    • LNCO's dividends are either "ordinary" (if you don't hold the stock long-term- specifically 60 of the 120 days before the ex-dividend date) or "qualified" (if you are a long-term holder). The first category is taxed at normal income rates, the latter at a preferred rate. Neither is a direct pass-through, though- you are confusing LNCO with LINE (an MLP, where payments *do* directly reduce cost basis but are not subject to tax as dividends until cost basis is exhausted). LNCO exists solely to pass LINE payouts on to shareholders under conventional dividend tax law.

      Sentiment: Buy

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