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Author: naj Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121319  
Subject: BCE & NT Tax Situation Date: 11/12/2000 4:58 PM
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I manage my mother's portfolio. She is a US citizen who held 480 shares of BCE when BCE spun off Nortel Networks (NT), so she now holds 1507 shares of NT (after the split).

It is my understanding, that as a US citizen, she will be taxed on the "dividend" of NT shares as if she received cash. If that is true, I have several questions I am hoping you can help me with.

1) What value will be put on the "NT dividend"? The value of the shares at the time of the "dividend", despite the fact that the shares have dropped in value quite a bit?

2) My mother is normally in the lowest tax bracket, but if NT counts as a cash dividend, she will show an income in excess of $100,000. That will really mess her up tax wise. It will change the amounts she needs to take any medical deduction, investment expense deduction etc. IF all that is true, I calculate she will need about $45,000 in cash to pay her 2000 taxes despite the fact she didn't receive one dime in cash. Am I correct?

3) Now for the really tricky part. She doesn't have that kind of cash. If I sell some stock most will trigger a gain since she/I am a long term investor. I could sell NT stock to pay the taxes but I hate to do that as I do think it is a good company and worth more than the going stock price. Any suggestions on how to raise the cash or deal with the IRS over this?

4) I could cash in some T-bills for part of the cash. Cashing in T-bills doesn't trigger any type of gain or loss; correct?

5) And how is the "dividend" different from the "tax basis" of NT? From the information I received before the spin off, it sounds to me like her tax basis in NT is a percentage of her tax basis in BCE, which is low because she held BCE for quite some time. How can the tax consequences be so different from the tax basis, or is it?

Thanks for any help you can offer; I'm desperate.
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