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Conference 7.286::dcu

Title:DCU
Notice:1996 BoD Election results in 1004
Moderator:CPEEDY::BRADLEY
Created:Sat Feb 07 1987
Last Modified:Fri Jun 06 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1041
Total number of notes:18759

655.0. "Is it a DIVIDEND or INTEREST?" by SMAUG::GARROD (From VMS -> NT; Unix a mere page from history) Thu Apr 15 1993 22:35

    Is the money that DCU pays you for having money deposited there an
    "INTEREST" or a "DIVIDEND". I thought it was a "DIVEDEND" and indeed
    that's what the monthly statements say ie it is money being distributed
    to me as an owner not as a customer.
    
    But... the 1099 I get is a 1099-INT and on this 1099 it says it is
    INTEREST. So which is it?
    
    The reason it matters is for MASS tax filing. If it is Interest from a
    Mass located bank it goes under 5.95% income. But if it is a DIVIDEND
    (Mass located or not) it goes under 12% income. Now I'm sure most
    of you would prefer it to be termed INTEREST (only taxed at 5.95%)
    but for me I'd much rather it be a DIVIDEND because I've still got
    losses to write off and hence my prior years losses wipe out any 12%
    income gains but not 5.95% income gains.
    
    Does anybody know the definitive answer, I tried calling the Mass Tax
    phone number but they only work during the day.
    
    Dave
T.RTitleUserPersonal
Name		DateLines
655.1Interest...AOSG::GILLETTCandidate for DCU Board of DirectorsFri Apr 16 1993 11:579
Monies paid you on your deposits from DCU are considered interest
earned for the sake of accouting for income tax purposes.  Also,
even though it's the "Digital Employess Federal Credit Union," it
is considered by Mass to be a Mass bank, so you pay the more
favorable tax rate on the interest earned.

I checked on this myself a few years back when I joined DCU.

./chris
655.2I'm confusedSMAUG::GARRODFrom VMS -> NT; Unix a mere page from historyFri Apr 16 1993 14:2610
    Re .1
    
    That's what I thought. But given that why does it clearly say DIVIDEND
    on the monthly statements? As far as I can see it really is a DIVIDEND
    and not INTEREST because it is a disbursement of earnings to owners.
    Given that why is it treated as INTEREST for tax purposes?
    
    I'm confused.
    
    Dave
655.3RGB::SEILERLarry SeilerFri Apr 16 1993 18:1417
When I had a money market account, the payments were also called DIVIDENDS
but were INTEREST for tax purposes.  

My guess is that this is treated as interest by the IRS because it quacks
like a duck... that is, because the amount we each get is a percentage of
the amount that we have in the savings account, just the same as if we
were getting interest from a bank.  If we replaced savings accounts with 
stock shares (tradable but not otherwise redeemable for cash) then I guess 
the IRS would consider the payments to be real dividends.  I think it would
also be real dividends if the DCU divided up some excess profit among members.

In this case, the IRS seems to agree with my own fetish for considering
things to be what they look like rather than what they are called.  We
all still remember those "participation" loans...

	Enjoy,
	Larry
655.4If it's a duck why not call it a duck?SMAUG::GARRODFrom VMS -> NT; Unix a mere page from historyFri Apr 16 1993 19:205
    RE .-1
    
    So if it is "INTEREST" why doesn't DCU call it "INTEREST"?
    
    Dave
655.5NCUA?ROWLET::AINSLEYLess than 150 kts. is TOO slow!Fri Apr 16 1993 23:443
    Maybe for the same reason you have 'sharedrafts' rather than 'checks'?
    
    Bob
655.6PATE::MACNEALruck `n' rollThu Apr 29 1993 13:173
    It's spelled out rather clearly in the instructions for the Federal
    (and probably the State) forms that Credit Union "dividends" are
    treated as interest for tax purposes.