On Sep 5, 11:36*am, se...[at]panix.com (Seth) wrote:
- quote -


Pay attention, everybody! <G> This is a Subchapter S corporation. It
CANNOT PAY DIVIDENDS to anybody unless it has Subchapter C earnings
and profits hanging around from a time when it was a C corporation.
In that case it could pay a dividend, which I presume would be a
qualified dividend -- but only to its stockholders. An S corporation
must make distributions proportionally to all stockholders; it can't
distribute dividends from C corp E&P to some stockholders and not to
others. If it has no C corp E&P, it can't pay dividends at all.

The answer to the original question is simply: NO.

Katie in San Diego

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <N7Yvk.199905$102.29726[at]bgtnsc05-news.ops.worldnet.att.net> ,
Gil Faver <rowdy'sboss[at]xxyz.com> wrote:
- quote -

That priority is written into the instrument's indenture, so it seems
the company could be arbitrary about it. There's no reason preferred
stock couldn't be senior to some bonds, or an instrument have
seniority that varies over time.

(I can't remember the company but there has been at least one with
inconsistent priorities specified: X, Y, and Z are equal according to
one document, but payments for Y would go to X and Y holders get
nothing until X is paid in full; do Z holders get anything from Y?)

Seth

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Seth wrote:
- quote -

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Seth" <sethb[at]panix.com> wrote in message
news:g9pf09$lj9$1[at]reader1.panix.com...
- quote -

changing the priority of recovery in a default situation?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <Xns9B0EBD5EDCC28avocatstuyahoofr[at]130.133.1.4> ,
Stuart Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

What's the purpose? Dividends paid while it's a stock are paid out of
after-tax corporate income, and can be qualified. After conversion to
a bond, coupons are deductible to the company and ordinary (interest)
income to the bondholder.

Seth

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote:
- quote -

Excellent point. That's a very fine legal point and really needs to
be dealt with by an attorney and OP in personal contact.

- quote -

Yes, the IRS does like to recharacterize transactions to reflect
"economic reality." So you're probably right.

- quote -

Yes, that happens, too.

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <yeCdnacfx-pYjSLVnZ2dnUVZ_tHinZ2d[at]giganews.com> ,
nish <nisha[at]nunya.org> wrote:

- quote -

By definition, dividends are paid on stock. Whether or not the
stockholders also own bonds is irrelevant.

Look up "preferred stock"; it pays (qualified) dividends at a fixed
rate. Like other dividends, the amount paid is not deductible by the
corporation. Interest on bonds is fully taxed to the recipient, but
deductible by the corporation.

Seth

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"nish" <nisha[at]nunya.org> wrote
- quote -




I would think the loss of the interest expense would be of importance to the
real owners here.

Dividends paid are not a business deduction regardless of if it's an "S" or
a "C" corporation.

Interest paid on business debt, however, is deductible by the business.




--
Paul A. Thomas, CPA
Watkinsville, Georgia

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote
- quote -




Does any of this juggling act void the "S" election because it'd be treated
as a second class of stock?





In any event, how the company wants to handle their interest payments is
their thing. I suspect the IRS would treat the receipt of interest income
(off the debt) as interest and void the hoop jumping act to try that tries
to change the receipt of interest into the receipt of qualified dividends.



And.....once they start looking at stupid tricks like that, what's to slow
them down from looking deeper into the company - either of them.






--
Paul A. Thomas, CPA
Watkinsville, Georgia

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Alan <sfcnm-mtm[at]yahoo.com> wrote:
- quote -

I had a thought. There is such a thing as a convertible bond.
Normally it's a bond that can be converted into stock. But what about
the other way around - common stock that at some point does or can get
converted into a bond?

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

nish wrote:
- quote -


--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Harlan Lunsford" <hlunsford[at]bellsouth.net> wrote in message
news:Rsyvk.21505$XT1.14662[at]bignews5.bellsouth.net...
- quote -

I was trying to find a way to offer qualified dividends to someone offering
debt financing to an S Corporation, so taxes to the shareholder aren't the
main issue.

For the case of a C Corporation, can qualified dividends be issued to a bond
holder, or are they only for shareholders?

nish

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

nish wrote:
- quote -

Qualified dividends come only from regular, i.e. C corporations.

Look at it this way, since net profit on page one of the 1120S is taxed,
you wouldn't also want to pay more tax on "supposed" dividends, right?

ChEAr$,
Harlan Lunsford, EA n LA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Can an S-Corporation pay qualified dividends? If an S-Corporation wants to
take on debt, can it do the financing as bonds and pay "qualified"
dividends, which would be eligible for the reduced 15% tax rate on qualified
dividends?

Does the answer differ depending on whether payment is to a shareholder or
non-shareholder?

nish

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >