October 23, 2012
Robert Spielman, Tax & Business Services Partner, Quoted in Compliance Week Article "C-Suite and Board May Need to Work Around Tax Cliff"
By Joe Mont
Most C-suite executives and their boards would rather leave tax issues in the hands of the accountants. Slogging through the byzantine tax code is a task better suited to CPAs, with at least a fighting chance of making sense of it all.
This year, however, company leaders may find they need to pay an unusual amount of attention to the tax code.
Despite plans on both sides of the political aisle to make various changes and the coming fight in Congress over the issue that is expected after the election, the so-called “Bush tax cuts,” in place since 2003, expire on Dec. 31. Barring Congressional action, income tax rates will rise, as will those on capital gains and dividends. A 2 percent payroll tax cut is also set to expire and a new 3.8 percent surtax on investment income for people earning more than $200,000 that is part of healthcare reform legislation will kick in at the start of the year.
Accelerated Dividend Payments
Robert Spielman , a tax partner at Marcum, an accounting and advisory services firm, says publically traded companies could pay year-end 2012 quarterly dividends to shareholders on or before Dec. 31 as another way to avoid tax increases. By moving their payable dates into the current calendar year, companies will enable shareholders to benefit from the current 15 percent dividend tax rate before any possible tax hike takes effect on Jan. 1.
He cites Wal-Mart as an example. If it rolled back its dividend pay date 48 hours from the declared date of Jan. 2, 2013, it could potentially save shareholders $261.8 million, if Congress doesn't act to preserve the rate. If paid in 2013, those same dividends would cost shareholders a minimum of $173.3 million (at 18.8 percent) or as much as $400.1 million (at 43.4 percent), absent an extension of the lower rate. The 18.8 percent rate reflects the current 15 percent dividend tax plus a 3.8 percent Medicare surcharge on unearned income. The 43.4 percent rate includes a 39.6 percent tax on dividends as ordinary income at the highest rate plus the 3.8 percent surcharge.
Spielman says this shift would be “ideal for companies looking for shareholder-friendly programs,” adding that the Securities and Exchange Commission has advised companies that they can change dividend dates at the discretion of the boards of directors. “Utilities and widely held companies really should be thinking about how they benefit their shareholders,” he says. “There is no net tax cost to the businesses and only a potential upside to the recipient.”
Spielman expects the move would take about two-to-four weeks for most companies to execute. “The challenge that you have is getting transfer agents or dividend-paying agents to be able to accommodate the change,” he says. “But if you are a Fortune 500 company and you tell them to make the change, they have to make it. It is no different from declaring a special dividend.”
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