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PDC Energy’s Dividend Tax Information
2021: IRS Form 8937
Convertible Note Due 2021
2021: IRS Form 8937
Dividend Related FAQ
A return of capital distribution is a characterization of an entity’s dividend payments to shareholders for income tax purposes. It is a distribution in excess of an entity’s current and accumulated earnings and profits. Different from dividend income and capital gains distributions, return of capital distributions are currently non-taxable to shareholders, unless the distribution exceeds the shareholder’s basis in the stock prior to the distribution. Instead, a shareholder’s tax cost basis of the stock is reduced by the amount of the distribution, which increases the amount of capital gains (or decreases the capital loss) to be recognized when a shareholder sells his or her shares. The portion of distribution payments that are considered return of capital rather than taxable income will be reported in Box 3 of the Form 1099-DIV that PDC Energy shareholders receive at the end of each tax year for a PDC Energy stock investment. It is possible that a portion of a distribution is classified as return of capital whereas the remaining portion of the distribution is considered taxable income.
“Earnings and profits” is a tax accounting term that is applicable in the context of distributions made by a corporation. Earnings and profits represent a form of economic income based upon taxable income with certain adjustments. Earnings and profits are increased through earnings and decreased through losses and dividends to shareholders. If the current year’s or accumulated earnings and profits are greater than all distributions made during the year, the distributions are taxable dividends. But, if the payout is greater than the company’s current and accumulated earnings and profits, the portion of the distribution in excess of the current and accumulated earnings and profits is a currently non-taxable return of capital that reduces a shareholder’s cost basis, unless, as noted above, the distribution exceeds the shareholder’s stock basis just prior to the distribution. If there is such an excess, that amount must be treated by the shareholder as capital gain.
WHERE DO SHAREHOLDERS RECEIVE INFORMATION ABOUT RETURN OF CAPITAL DISTRIBUTION ALLOCATION EACH YEAR?
PDC Energy is required to complete and post on its website IRS Form 8937 which will provide details on the expected changes to tax basis on PDC Energy shares due to a portion of PDC Energy distribution being classified as return of capital vs. dividend income for tax purposes. This form will be posted to the PDC Energy Investor Relations website within 45 days after a dividend payment if the distribution is expected to impact shareholder basis. Final estimation of return of capital vs. taxable dividend treatment is reported to shareholders on the Form 1099-DIV at the end of each tax year. The amount of the return of capital distribution will be reported in Box 3 of Form 1099-DIV.
It is the responsibility of each PDC Energy shareholder to maintain the cost basis of their PDC Energy investment. Shareholders should consult their own tax advisors as to their specific tax consequences. PDC Energy’s Investor Relations department is not staffed by tax personnel and PDC Energy’s personnel do not provide tax advice.