So, we all know by now that the spin off hit us in the pocket a little unexpectedly… I guess my question now is WHY?? How come it could not come off more like a split and be non taxable? How did i supposedly benefit $50,000 from one day to the next because of the spin off? What it the logic behind it? Anyone know?
To be elibigle for a non-taxable spinoff, NCT would have had to own the assets that it was spinning off for longer than some period. (I'd have to look it up, but one year may not be long enough. And NCT did not own most of its MSRs for over one year.)
The logic is that NRZ and NCT as stand alone companies would be more valuable than what NCT was before the spinoff.
I don't know about you, but I got NCT over two years ago at under $6. I've since collected nearly $2 in dividends and today's combined value of NCT and NRZ is over $10.50. Just because the "market" is volatile does not mean dividends are in trouble. NRZ's residential loans and MSRs are doing just fine, as is NCT's senior housing and NCT's CDOs are still paying. The "market" is in a bubble and some things are overvalued. Unfortunately, when selling begins, people are not rational. NCT is not overvalued, nor is NRZ. JMO
It was know prior to the spinoff or distribution of NRZ that it would be taxable. Unfortunately how much that was taxable wasn't known till Jan 2014. I don't think most expected this big of a tax hit. If many had thought or known about how much the taxes would be there would have been a lot of selling before the distribution of NRZ.
Yeah, it was not unexpected as they stated it prior to the distribution. By the way, its not a "spin off". A spin off is when a company essentially splits into two or more. This was a distribution of property which is the stock of another company. Due to some complex REIT rules, its difficult to accomplish a spin off.
You benefit because NCT, having accumulated earnings and profits, distributed that and more to you in the form of stock. And this stock is readily tradeable on a public market. In other words, whether it is money or stock, it is the same since you can instantaneously sell your stock for cash.
Long term investors KNEW last year that this would be a taxable event to shareholders. The company stated many times it would be so. We also KNEW on 1/31/14 what the tax numbers would be in their press release. It was not unexpected to those that follow the company closely and read their press releases. JFYI the NEWM spinoff, if you own it will also be a taxable event. Check out the NEWM website, 2/11/14 presentation, pp15 footnotes.
I agree with what you say, but my only bone to pick was I ended up owing so much taxes on the federal and state side that I got tagged with a decent sized penalty for not doing the estimated quarterly tax payment ahead of time.
P.S. The presentations also state that all distributions by NCT, whether they be cash or stock, are to be treated as a taxable distribution. NRZ and NEWM were classified as stock distributions by the company.