Developments affecting contingent value rights, straddles, and redemptions

Article Abstract:

New developments for corporate finance vehicles include rulings on straddles, redemptions and contingent value rights (CVRs). Letter ruling 9235053 declared CVRs to be cash settlement put options and also tax straddles. In Progressive Corp Subsidiaries v. Commissioner, the Sixth Circuit disallowed a dividends-received deduction for a forward conversion. Time-Warner's convertible preferred stocks may be treated as exchanges or distributions depending on how the redemption effects stockholder proportionate ownership interest. New rules for net operating losses may encourage banks to sell equity.

Securities, Investments, Securities taxes

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Recent developments address OID and dividends-received deduction

Article Abstract:

Investment in contingent yield debt instruments, high-yield discount obligations and zero-coupon bonds will result in original issue discounts that taxpayers must account for. The discount must be accrued because it results in taxable income. Other corporate finance issues to consider include holding periods for dividends-received deductions, dividend reinvestment plans, leveraged buy-out loan fees and short sales by tax-exempt organizations.

Accounting and auditing, Discount (Finance), Short selling, Financial contingencies

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TRA '97 changes in option strategy, anti-dividend stripping rules highlight recent developments

Article Abstract:

The anti-dividend stripping rules were reinforced by provisions in the Taxpayer Relief Act of 1997. Similarly, option strategies have to be modified in light of the tax law changes. Provisions in the act also affect tax treatment of put sales, hedge funds, and hostile takeover expenses.

Laws, regulations and rules, Options (Finance), Capital gains tax

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