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words remained encouraging about the success of the transaction
because of the decrease in individual and corporate tax rates at
that time. Indeed, Mr. Page hastened a final decision by the
shareholders on whether to do the transaction or not, when he
wrote in the letter:
The extraordinary dividend route, with a top rate of
28%, is of course much more economical than the prior
50% tax rate. In addition, the 1987 Revenue Act * * *
could lead one to believe the utilization of the
proposed transaction may have a relatively short life.
There is no question in my mind [that] the 28% tax
rate, an essential ingredient of the funding method, is
a short-term window of opportunity.
Mr. Page recognized that, to the corporation, the proposed
transaction was "'not good' in that for ten years all it receives
is the ordinary income of the partnership, and at the expiration
of the ten-year term, its entire initial investment * * *
disappears." But, as to the remaindermen, Mr. Page wrote:
assuming utilization of the after-tax proceeds from the
extraordinary dividend to pay for their remainder
interest, the effect is to extract cash from * * * [the
corporation] at an approximate 14% tax rate. In addi-
tion, if some of you wish for the remainder interest to
be acquired by your descendants or remote trusts, the
effect is to avoid both estate tax and generation
skipping tax if the holder is more than one generation
removed.
Mr. Page was careful to note that the success or failure of the
joint undertaking depended upon whether "the holders of the
remainder interests are * * * 'family members' and not
'strangers'." He then offered his final recommendation: the
shareholders, as a group, should participate in the purchase of
remainder interests in newly created partnerships.
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