Income Tax in the United States and Dividend Income Essay Example
Income Tax in the United States and Dividend Income Essay Example

Income Tax in the United States and Dividend Income Essay Example

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  • Pages: 2 (340 words)
  • Published: October 20, 2017
  • Type: Tasks
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Rev. Ruling 82-11 states that Coyote Corp. is required to include the dividend income for federal tax purposes as they are contractually entitled to receive the dividend on the date of record. In contrast, Fox does not include the dividend income on their federal return. According to Rev. Rule 82-11, the ex-dividend rules of a stock exchange do not determine when a shareholder becomes entitled to a dividend for federal income tax purposes.

Y cannot transfer the burden of income taxation on dividends by selling the underlying shares of stock to Z after the declaration and determination of dividends, as Y is the record holder entitled to the declared dividend on the record date. Thus, the payment made by Z to Y consists of two separate items - the right to receive the dividend and consideration for the und

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erlying shares. Consequently, only xx dollars of the amount received by Y is considered as received in exchange for the X stock.

The remaining xx dollars received by Y is considered as evident income, entitling Y to a dividends received deduction under section 243 of the Code for this amount. "Therefore, Coyote recognizes the dividend income and qualifies for the dividends received deduction under 5243 for the $4000 dividend payment from Fox, even though the dividend is paid from Jackal directly to Fox per the agreement. The remaining payment of $71,000 made to Coyote is treated as payment for the stock, resulting in a $26,000 LATCH for Coyote (71 basis).

Fox is not entitled to a 5243 deduction and does not agonize dividend income. Additionally, the stock basis in the 1,000 shares held by Fox is

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determined by 51012 of the IIRC. According to this, the basis would be the cost, which is $71,000 for the stock purchase. The remaining $4,000 was considered payment for the Loveland Income Ana and should not be included in the basis. As per Rev. Rule 82-11, the payment is divided into two parts - only the amount related to the stock is included in the basis, while the other amount is for the right to receive the dividend payment.

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