7507. What is “stripped preferred stock”? How is “stripped preferred stock” taxed?Nuco Employeercline202014-06-26T17:48:00Z2014-06-26T17:48:00Z22941681Summit Business Media143197214Site Map/Investments/Stocks/Dividends/Dividends Paid In Cash or PropertyTaxFactsDefaultArticle2007-01-30T00:00:00Z120381007-00-tf2.xml1007.00;#1965;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2What is “stripped preferred stock?” How is “stripped preferred stock” taxed?
50400.0000000000TaxFactsDefaultArticle2010-01-14T23:08:06ZSBMEDIA\moss-admin7507. What is “stripped preferred stock”? How is “stripped preferred stock” taxed?Stripped preferred stock is stock with respect to which there has been a separation of ownership between the stock and any dividend on it that has not become payable, if the stock (1) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent; and (2) has a fixed redemption price.IRC Sec. 305(e)(5).An individual who purchases stripped preferred stock generally must (while he holds the stock) treat the stock as though it were a bond issued on the purchase date with an original issue discount equal to the excess, if any, of the redemption price over the price at which he purchased the stock. This tax treatment also applies with respect to any holder of the stock whose basis is determined by reference to the basis in the hands of the purchaser (such as a donee or legatee).IRC Sec. 305(e)(1). (See Q 7634 for an explanation of the treatment of original issue discount).An individual who strips the rights to one or more dividends from stock described above (i.e., stock that is limited and preferred as to dividends, does not participate in corporate growth to any significant extent and has a fixed redemption price) and disposes of those dividend rights generally will be treated as having purchased the stripped preferred stock on the date of the disposition, for a purchase price equal to the adjusted basis in the stripped preferred stock.IRC Sec. 305(e)(3).The amounts includable in gross income under these provisions are treated as ordinary income, and the basis of the stock will be adjusted accordingly.IRC Secs. 305(e)(2), 305(e)(4).“Purchase,” for purposes of this provision, is defined as an acquisition of stock where the basis of such stock is not determined in whole or in part by reference to the adjusted basis of the stock in the hands of the person from whom the stock was acquired.IRC Sec. 305(e)(6).