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Buffett Denies Tax Dodge on BofA Deal

NEW YORK ( TheStreet) -- Warren Buffett's Berkshire Hathaway (BRK.B)has clarified that it will incur an effective tax rate of 14.175% on the $300 million in dividends that it will receive each year from Bank of America (BAC - Get Report) and not 10.5% as stated in a Wall Street Journal editorial.

The company said that virtually all of the stocks that Berkshire owns are held in its property-casualty subsidiaries and the same will apply to the Bank of America preferred.
Warren Buffett

"The tax treatment for dividends paid by U.S. corporations to property-casualty insurance companies was materially changed by a law passed in 1986. The changes were described in detail in the chairman's letter included in Berkshire's 1986 annual report," the company said in a statement. "A minor change in rate was made in 1993. Since that time dividends that insurers receive from U.S. companies incur an effective tax rate of 14.175%. For Berkshire, that rate will apply to dividends it receives from Bank of America."

Berkshire Hathaway invested $5 billion in Bank of America preferred shares last week. The shares will have annual dividend of 6 %, payable in equal quarterly investments and is redeemable at any time at a 5% premium.

--Written by Shanthi Bharatwaj in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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