Debt-Financed Portfolio Stock: Less Egregious Tax Avoidance Method
W. Eugene Seago
Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems
Edward J. Schnee
University of Alabama - Culverhouse School of Accountancy
Tax Notes, Vol. 116, No. 12, September 17, 2007
Section 246A creates another situation in which a corporation's liabilities must be related to a specific type of asset: a dividend-paying stock. If the relationship is direct, the dividend received deduction is denied the corporate investor. As discussed in this article, in determining whether the relationship is direct the benefit of the doubt seems to run in the corporate investor's favor. The authors suspect that may be because an overzealous application of the statute would result in the corporation's income being taxed three times, which amounts to capital punishment.
JEL Classification: H25, G35Accepted Paper Series
Date posted: September 14, 2007
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