IRS Rules Palm's Distro of PalmSource Tax-Free

Posted By: Ryan Monday, January 6, 2003 10:49:41 AM

Palm, Inc. today announced that it received a ruling from the Internal Revenue Service that a proposed distribution of shares of PalmSource, Inc., Palm's majority-owned operating-system software business subsidiary, will be tax-free to Palm, Inc. and its United States shareholders for U.S. federal income tax purposes. This is another key step in the final separation of Palm Inc and PalmSource.

Palm expects to distribute the shares of PalmSource, which develops and licenses the Palm operating system, to Palm, Inc. shareholders in the first half of calendar 2003, pending approval of the distribution from the Palm Board of Directors and filing of the appropriate documents with the U.S. Securities and Exchange Commission.

"The IRS ruling puts us another step closer to achieving our objective of creating two independent companies, each focused on the strategies required to strengthen its respective leadership position within the mobile-computing industry," said Eric Benhamou, Palm chairman and chief executive officer.

Palm Inc and PalmSource Separation milestones:

Palm, Inc. announced on July 27, 2001, that it would establish a separate subsidiary structure for the operating system activities of the company. The other part of the company -- Palm Solutions Group -- is responsible for Palm branded handheld computers, enterprise software, peripherals and accessories;
Internal separation was accomplished in December 2001, with PalmSource created as a wholly owned subsidiary of Palm Inc.;
A PalmSource board of directors was established in June 2002;
PalmSource ceased to be wholly owned by Palm, Inc. on Oct. 8, 2002, when it accepted its first outside investment. Sony Corp. invested $20 million, which resulted in an ownership of approximately 6 percent of PalmSource; and
A ruling was received Dec. 30, 2002, from the IRS that a proposed distribution of PalmSource shares to Palm shareholders in the United States will be tax-free for U.S. federal income tax purposes.
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How long will PalmSource remain independent?

gfunkmagic @ 1/6/2003 4:45:39 PM #

Well Sony already has 6% of shares, I truely doubt whether PalmSource can remain independent as a such a small company for too long. The ony thing the prevented the previous whole "Palm" from becmoing a take-ever target was the tax implications following its spin-off from 3com. That having been lifted apparently, it will be interesting to see how long Palmsource survives as an independent firm...

The 2003 National Championship WAS ROBBED!!! Terry Porter, you suck you freakin REF! OSU STOLE the Chanpionship, period!!

RE: How long will PalmSource remain independent?

xtremist5150 @ 1/6/2003 4:56:42 PM #

I don't know, I think PalmSource stands a good chance of carving its own niche, especially now that it's not tied to any hardware-specific platform. I have a feeling that we'll start seeing some good things coming from them later on this year. (fingers crossed while performing a voodoo dance)

RE: How long will PalmSource remain independent?

mtt @ 1/7/2003 12:52:20 PM #

There is no reason why PalmSource couldn't remain independent indefinitly... it would be an interesting situation for huge Sony, etc. licensing from a tiny Palmsource, but as long as they could pay their own bills, they wouldn't have to sell out. They probably couln't afford to defend themselves in court if a large company started infringing on their contracts though...

Miami Hurricanes- the true national champions

MTT

RE: How long will PalmSource remain independent?

enjolras @ 1/7/2003 5:38:35 PM #

Particularly with all of it's licensees..

And yes, there was plenty of pass interference calls blown in that game. Look at the 3rd down player on OSU's last possession of the 4th quarter. The Miami kid held the receiver in every direction... It should have never even GONE to overtime.

RE: How long will PalmSource remain independent?

KRamsauer @ 1/7/2003 7:25:15 PM #

Just because this distribution is tax free doesn't mean a future purchase will be. A better term for it would be "tax postponed" in that the transaction will not trigger capital gains right now, but rather pushes them (if there are any) into the future. I don't know the tax basis so I can't really comment on how big the gain is.

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