Members of the Maryland Association of Certified Public...

Tax answers

April 02, 1996

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: I own some Baltimore Gas & Electric Co. stock and, instead of taking cash dividends, the dividends are automatically reinvested to buy more shares. Do I have to report that dividend income on my income tax form?

A: Yes. A dividend received under a dividend reinvestment plan, which provides that a shareholder can use the dividend to purchase additional shares, is taxed as a stock dividend in an amount equal to the amount of money that the shareholder would have received when the shareholder has the right to choose between cash and stock of the same value. Your basis in these additional shares is equal to the amount of the dividend received and represents your cost, or additional investment, in these shares. Therefore, your overall basis in the stock is increasing with each reinvested dividend and should should be taken into account when, and if, you sell the shares involved.

Clarification: A tax answer of March 15 stated that scholarships are generally not taxable. That applies to grants for tuition; a portion of a scholarship that covers room and board is taxable.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

Members of the Maryland Association of Certified Public Accountants will answer selected tax questions from readers until April 15. To ask a tax question, call Sundial, The Sun's telephone information service, at (410) 783-1800. Using a touch-tone phone, enter 6225 after you hear the greeting. Please leave your name and phone number in case a question needs clarification; names and numbers will not be published. Selected questions will be answered in the Business section. No questions will be answered by phone.

Pub Date: 4/02/96

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