"Disguising" US Treasuries as Equity

Suppose that I register a company with the SEC. This company issues an equity which many investors purchase, and the stocks issue a bi- annual dividend of ~5.5% (based on the IPO price).
The dividends would get taxed very favorably, when compared to the interest on a corporate/gov. bond (non-municipal).
Now, here's the surprise in my hypothetical example: Suppose that my "corporation" is nothing more than a shell to invest in US Treasuries! The equity investor buys these "stocks", which pay a "dividend", and they get taxed much more favorably then if the investor bought the US Treasury themselves. The interest on US Treasuries are not tax-deductible at the federal level, and I believe that they get taxed as income.
If on the other hand, this were disguised as a stock dividend, then this would be more tax-efficient.
Another method to disguise an investment, and this maybe more lucrative and easier, is to disguise the corporate bond as a municipal bond, and the interest won't get taxed at all.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Only "qualifying dividends" are eligible for the reduced tax rate. The dividends of such a shell company would certainly be judged as non- qualifying by the IRS.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Take a look at PHC's, Personal Holding Companies.
The combined tax rates (corporate and individual) would often exceed the individual's ordinay tax rates. Add 15% if the income is not distributed to the shareholders.
FYI: Dividends are not deductions by the company, so they don't reduce corporate taxable income by the distribution amount.

The corporation would pay tax at the rate of 15% first. No deduction for federal income tax paid by the way.
So, $50,000 of interest income would see $7,500 in federal taxes alone. Since you are left with $42,500 to distribute, you'll pay an additional 15% tax on the $7,500 income ~not~ distributed, or another $1,125 (the actual amount is higher). The distributed $41,375 or less, if taxed at 15% to the individual would run $6,206 in federal taxes.
Total taxes run just shy of $15,000. Close to 30% which, if I'm not mistaken, takes someone in the $160k+ (if single) or $195k (if married) of income or higher before they'd see any benefit from a PHC of this type.
Corporate income over $50K is taxed at 25%, over $75k is taxed at 34%, and it goes up from there.

Some states exempt interest on US securities.

Now you're running into the area reserved for CID.
--
Paul A. Thomas, CPA
Athens, Georgia
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

CID = criminals in development? Looks like Brablo is studying to be Jeff Skilling's roommate.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
snipped-for-privacy@noospam.com wrote on 5/15/07 6:15 PM:

He's been coming up with these hare-brained schemes since he discovered MIS.....
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Midigts In School?
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Paul Thomas, CPA wrote on 5/16/07 11:46 AM:

"Midigts"???.......I don't understand those technical CPA terms.......
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote

MIS = misc.invest.stocks.
Paul, you fell into this news group because of the OP's crosspost. The characters in this news group are right out of Dylan's Desolation Row. Not like the tax and accounting news groups you hang out in.
704set
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Hey we like the WWW here
Wild Wild West
bang bang ... your dead
wrote:

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
dividends are distributions of corporate assests and reduce the NAV of a company. So your "stock" is worth less after the distribution
electing the same fucking lawyers to government is a capital idea.
wrote:

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.