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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 123522  
Subject: If dividends were exempt from taxation Date: 5/23/2003 11:07 AM
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Luckily the tax law passed earlier today is much saner than some of the initial proposals.

One big problem I perceived to exist in the initial proposal of full exclusion of dividends from tax is the apparently ease of converting short-term capital gains into tax-free dividends. Please correct me if I am wrong, but the following strategy appears to have been valid using that version of proposed tax law.

1) Have short-term capital gains in issue X.
2) Sell X and realize those short-term gains.
3) Buy Y just before it declares a dividend ("buy a dividend").
4) Receive dividend from Y.
5) Sell Y at a short-term capital loss.
6) Balance short-term capital gains from X with the short-term capital loss from Y. No tax due.
7) Dividend from Y. No tax due.

Is there some sort of fallacy here I missed ?
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