Washington (Feb. 20, 2004) -- The Treasury Department and the Internal Revenue Service said they will let taxpayers take advantage of provisions of the Tax Technical Corrections Act of 2003 related to qualified dividends, in spite of the fact that the law hasn’t been enacted yet.
The act will allow partnerships, S corporations, estates and revocable trusts treated as part of an estate in a fiscal year that began in 2002 to pass through dividends received in 2003 to their partners, shareholders and beneficiaries as dividends qualifying for the lower tax rates, to the extent that the dividends are otherwise qualified. The act will also change the holding period test for qualified dividends. Congress is expected to enact legislation to make the technical corrections in Section 2 of the act effective for dividends received beginning Jan. 1, 2003.
The Treasury and the IRS agreed to let taxpayers apply the corrections as if the legislation were already enacted so that taxpayers won’t have to amend their tax returns later to benefit from the lower rates.
To qualify for the lower tax rates, the taxpayer must now hold the dividend-paying stock for at least 61 days during the 121-day period (instead of the current 120-day period) beginning 60 days before the ex-dividend date -- the first date that the buyer will not be entitled to receive that dividend. A stock bought on the last day before the ex-dividend date (the latest purchase date for collecting a dividend) can still meet the holding period test for that dividend, since there are 61 days left in the 121-day period. A stock sold on the ex-dividend date (the earliest selling date after entitlement to a dividend) can also meet the test, since that is the 61st day in the period. Therefore, if a taxpayer holds a stock for at least 61 continuous days, the holding period test will be met for any dividend received, unless the risk of loss was diminished.
-- WebCPA staff
