NEW YORK (
) -- As if the decline of
did not add enough to his New Year blues , fund manager Bruce Berkowitz may be facing a big tax bill for warrants he received as a common shareholder of
American International Group
The Internal Revenue Service has ruled that the issuance of 75 million warrants to AIG's common shareholders this January does not qualify as a tax-free distribution, the insurance giant announced on Thursday.
Fairholme Fund manager Bruce Berkowitz
In a press release, the company said that based on available information, it still expects that the distribution of warrants will not attract a tax.
"Under such treatment, the distribution of the warrants will not be taxable, (except to the extent that a holder's adjusted tax basis in each common share on which the warrants were distributed is less than $8.70)," it said in a statement.
AIG expects to characterize the warrant distribution as a non-dividend distribution having a tax basis equal to $16.29. Under such treatment, a holder's adjusted tax basis of the common shares on which the warrant was distributed generally should be reduced by an amount of $8.70 per each common share with respect to which such distribution was made, but not below zero, according to the company.
"To the extent that the warrant distribution exceeds a holder's adjusted tax basis in the common shares, such excess generally should be included in income of a U.S. holder and certain foreign holders as gain. This gain generally will be long-term capital gain if the common shares have been held as capital assets and for more than one year. In addition, under such treatment, corporate holders will not be entitled to the dividends-received deduction," it added.
Berkowitz owned 23.9 million warrants in AIG as per the latest filing.
--Written by Shanthi Bharatwaj in New York
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