DiSabatino CPA Blog

Mike DiSabatino CPA

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Investors should be aware of inversions - the corporate ones

Investors should be aware of inversions

Not like the image here... Some U.S. companies are using corporate inversions to reduce their taxes. Investors in companies that do an inversion may find that their own taxes are increased.

 

When the U.S. company becomes the subsidiary of the foreign company, it issues replacement shares. Typically, the new shares are equal to the former shares but no cash is involved. As a shareholder, you're required to recognize a gain on the exchange of stock even though your ownership position remains the same. The gain is the amount by which the value of the stock on the inversion date exceeds your basis.

Investors should also be aware that inversions can affect the amount of capital gain reported to you by mutual funds you own if companies in the fund's portfolio choose to invert.

Though not all mergers will create taxable income, keeping an eye on your portfolio can prevent tax bill shock when you file your 2014 federal income tax return.

The IRS and the Treasury recently issued regulations intended to curb the growing use of "corporate inversions." Here's how an inversion typically works: A U.S. company acquires a foreign company in the same business with the intent of changing the corporation's headquarters to the foreign country in order to enjoy that country's lower tax rate. The new rules put more restrictions on inversions in order to make them less attractive to businesses.

Please give us a call to discuss this or any of our other topics with you, so we can address your specific requirements.

DiSabatino CPA
Michael DiSabatino
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Phone: 805-389-7300
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