scorpioncapital Posted April 7, 2016 Share Posted April 7, 2016 I was reading this by Ben Graham where he advocates using stock dividends instead of cash dividends (from what I can ascertain this is almost the same as spinoffs, or possibly a "regularly paid spinoff"). http://www.rbcpa.com/Common_Sense_Investing_The_Papers_of_Benjamin_Graham_1974.pdf He writes that corporate income tax is paid in 3 layers and one is alternative minimum tax "Earnings improperly accumulated – i.e. retained by the corporation for the purpose of evading the payment of personal income tax by shareholders – are subject to a penalty tax under Section 102 of the Internal Revenue Code." "It is an evasion of the tax law to retain earnings not needed in the business in order that stockholders may be spared personal income tax thereon. But, conversely, the purpose and provisions of the tax law are complied with then earnings are retained for expansion. " So it sounds like a little bit of what Berkshire does with putting lots of retained earnings back to work as capex to grow. BUT, Berkshire itself pays no dividend and retains everything. So I was wondering how come they don't pay AMT - is it because holding companies can retain as much earnings as they want? Link to comment Share on other sites More sharing options...
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