Yes. We have heard nothing from Patrick since his brothers resignation assuring us that things are in order. We have heard nothing about the spinoff of the Auryn holdings since the tailings project was stopped.
With the MDMN scandal breaking would seem that Patrick would want to step up and communicate and assure us that the spinoff is in the works and that the CDCH share structure is rock solid. The silence is deafening!
Here is the final judgement vs Day
Thank you!
I’m not going to share my full exchange with Patrick (it did not involve anything MDMN specific) but he adamantly claims that the recent share count is “absolutely” the final count and nothing going on at MDMN should translate into “shenanigans” at CDCH. Nothing is concrete but I’m fairly confident we are at 276M shares and there is a good possibility for that number to come down.
Thanks Baldy for sharing your conversation with Patrick. Any idea on when they plan on releasing more news on upcoming events, if any?
Baldy brought the following situation up:
As Baldy mentioned, there are no near term dividends probable (possible?) until all claw-backs are dealt with and a suitable new project funded. Since some of us that have been here a good many years may have a considerable position contained in an IRA or ROTH accounts, it is not too early for discussion and sharing ideas on how this will best be accomplished. When the La Serena project failed to get funded the clear pathway envisioned to “locking down” shares became a little more complicated. Anyone wishing to have an informal discussion of this topic immediately following the presentations please PM me. I do not expect this to be discussed at the regular Informational Meeting since I also do not anticipate a spokesperson for Cerro to be present. I welcome anyone with shares in an IRA that are not attending the meeting to PM me with any thoughts pertaining to this situation. The main theme is that only present shareholders should receive dividends on an undilutable basis. A new project would be freely trading, whereas the “dividend” stock would not.
Hi easy,
here is a starting point re IRA’s.
IRC § 1361 (b)(1), IRS Letter Ruling 199929029, April 27, 1999.
– The only restriction to company ownership for IRAs is that IRAs may
not own shares of S corporations as an IRA does not qualify as an S
corporation shareholder.
There are other restrictions so I guess we have to wait to see what the “vehicle” will be for the CDCH split.
I believe easy’s point is, we need to be part of the discussions about the “vehicle” to be used. One that does not create problems for shares held in Roth, SEP, and Traditional IRA’s. What is the best one and how does it’s creation get paid for?
The problem with a retirement plan or IRA owning an interest in a private company is it creates “unrelated business income” If the unrelated business income is greater than $1,000 in any year the IRA has to file form 990 and pay income tax on the income.
Avoiding Taxes on Your IRA
By BOB CARLSON on NOVEMBER 15, 2013
Yes, your IRA could be hit with income taxes, even if it’s a Roth IRA. This is nothing new. The potential for an IRA or other qualified pension plan to owe taxes has been in the law for a long time. It hasn’t affected many investors, because it is only in the last few years that many investors sought investments other than traditional stocks and bonds and related mutual funds.
Keep in mind that an IRA is a separate taxpayer and is subject to different rules than you are. Most of the time IRAs are tax-exempt and have more favorable rules than you do, but there are a few exceptions.
The trap IRAs are most likely to fall into is what the tax code calls unrelated business taxable income (UBTI). When an IRA earns gross UBTI exceeding during a year $1,000, it must file a Form 990-T and pay income taxes at the corporate tax rates. An IRA also must pay estimated income taxes during the year if the tax is expected to exceed $500. The return is filed by and the taxes are paid by the IRA, not by the owner or beneficiary, and the custodian or trustee of the IRA is supposed to be responsible for filing the return and paying the taxes from the IRA. But the custodian might not receive the Form K-1 reporting the income or might not file the return. As the IRA owner and beneficiary you ultimately bear the cost of any taxes and penalties, so be sure to check with your custodian and coordinate who will file the form and pay the taxes. Most trustees and custodians will charge for filing the return.
The $1,000 limit applies to the IRA, not to each investment in the account. If all the UBTI earned by the IRA during the year exceeds $1,000, the tax obligation is triggered. Also, the $1,000 limit applies to the IRA, not per taxpayer. When you have more than one IRA, each IRA has its own $1,000 UBTI limit.
You want to avoid UBTI, because the IRA owner essentially is taxed twice on it. The IRA will be taxed on the income. Subsequently, the owner or beneficiary will be taxed on distributions of that income. No deduction or credit is available to the owner for UBTI paid by the IRA and the tax is not added to the tax basis of the IRA.
An IRA potentially has UBTI if it does any of the following:
operates a trade or business unrelated to its tax-exempt purpose,
receives certain types of rental income,
receives certain passive income from a business entity it controls,
invests in a pass-through entity, such as a partnership, that conducts a business, or
uses debt to finance investments.
Any business is considered unrelated to the exempt purposes of an IRA or other retirement plan. Fortunately, the tax code specifically excludes from the definition of trade or business income interest, dividends, capital gains, and profits from options transactions. Royalties also are generally exempt. Some types of rent are exempt; others aren’t.
Controlling a business entity can convert exempt income into UBTI. When an IRA has greater than 50 percent control of a business entity, rent, interest, or royalties paid by the entity to the IRA generally are UBTI.
An IRA is most likely to run afoul of the UBTI restriction when it owns an interest in a pass-through business entity (partnership or limited liability company), because income from these entities is UBTI even if the IRA doesn’t own a controlling interest. Master limited partnerships (MLPs) most often trip up IRA owners.
MLPs are traded on major stock exchanges, and many people think of them as being the same as corporate stock. In fact, these are partnership units, and the income and expenses of the partnerships pass through to the owners at tax time. Owners receive K-1 statements each year instead of 1099s to use in completing their tax returns. The K-1 states the amount of UBTI and other income and expense items attributable to the IRA.
Individuals generally are urged not to purchase MLPs through IRAs, but it isn’t illegal to own an MLP through an IRA. Owning an MLP through an IRA or other qualified plan is discouraged because of the potential for the IRA to be taxed and have to incur the expense of filing different tax returns.
Owning an MLP through an IRA creates UBTI and possibly the requirement to file a Form 990, pay taxes, and pay estimated taxes during the year. Once the $1,000 income threshold is crossed, there is no tax advantage to owning MLPs through an IRA. (When MLPs generate more than $1,000 of UBTI in an IRA, some tax advisors recommend taking the easier and cheaper route of reporting any IRA-owned pass through items on the individual tax return instead of taking the time and expense to file a separate return for the IRA. It’s not clear this satisfies tax code requirements, and if you choose this route be sure your custodian is not also filing and paying the taxes from the IRA.) Also, remember that UBTI is taxed at corporate rates, not individual rates. That makes holding a large amount of MLPs in an IRA unattractive.
There is another reason to make MLP investments outside of a tax-deferred or tax-free account. Most MLPs already have tax advantages. Their operations generate depreciation deductions or other write offs that make a high percentage of income distributions tax free. These tax benefits are diminished when the MLP is owned inside a tax-favored account. (Though the tax advantages of owning an MLP outside an IRA can diminish after an MLP is owned for about 10 years or so.)
Another time an IRA is very likely to have UBTI is when debt is used to finance investments. Any type of income can become UBTI when debt is used to finance the property that generates the income. For example, if an IRA receives a margin loan from the custodian or broker, income generated by the securities purchased with the loan proceeds would be UBTI. An IRA can own real estate and earn rental income, and that rental income will be tax deferred. If the real estate is financed with a mortgage, however, the rental income becomes UBTI.
What about when an investment that generated UBTI is sold? Suppose, an IRA has a substantial investment in master limited partnerships that generated a few thousand dollars of UBTI each year. The IRA sells the MLPs at a gain. Is the capital gain UBTI? No. Only the business income generated by an investment is UBTI. Any capital gains from selling that investment are not UBTI.
When property that was financed with debt is sold, however, the capital gain from that sale is taxed as capital gains to the IRA. If the MLPs were purchased with margin loans, for example, the capital gains would be UBTI.
The UBTI rules are broad and extensive. You have to be especially careful of debt-financed investments, business ownership, and ownership of pass-through entities. You can find more details in my report IRA Investment Guide: A Road Map for Avoiding the Traps and Penalties for IRA Investments. It’s available through the Bob’s Library tab at www.RetirementWatch.com.
CDCH does have work around options to avoid the tax problems discussed in your article, however the work arounds apply only to those holding a position in IRA accounts and are somewhat complicated. Those shareholders holding shares in a traditional trading account have a different and uncomplicated solution to be applied in receiving dividends from the AURYN equity interest shared by all CDCH shareholders.
Seems to me that the planned spinoff of our Auryn interest into a private entitity so that Patrick can retain the public entity for his new endeavors is a convenience for him and an inconvenience for us existing shareholders. Moving our interest into a private entity ELIMINATES ALL OF OUR LIQUIDITY, not to mention the complications associated with owning it.
Lets propose that we keep our interest where it is and Patrick can form a new private or public entity and those who wish to tag along with his new ventures can do so at their discretion rather than all of us being forced to participate.
Wiz provided some new information yesterday. Apparently there is some type of “first right of refusal” held by Auryn over the 5% owned by Cerro in terms of any change of ownership transaction. This means Cerro can not sell or reassign the 5% just however they want. Auryn has to be given some type of opportunity to exercise their rights before such a transaction.
Also, the IRA / private company thing has apparently led to the advice that it would be better (and probably acceptable to Auryn) if the CDCH spinoff holding company (to hold the 5% AMC) would be a public company which would avoid some of the tax complexities. Building on this idea, Wiz / Kevin proposed that then there could be an effort to have a common BOD / executive team between the new CDCH2-AMC-HOLDING-CO and MDMN, one friendly and acceptable to Auryn, which would run the companies at the lowest expense level possible. The CDCH shell could go do whatever it wanted after that.
In addition Kevin / Wiz suggested it only makes sense that the CDCH2-AMC-HOLDING-CO and MDMN would be merged in the longer term (3 to 5 years) either directly, by being bought out or their AMC shares being bough, or other means like Masglas / AMC going public.
I think Patrick needs to be encouraged to engage these ideas and forge some type of relationship and plan with the new Medinah. This stone wall of silence between them is stupid.
BTW - Wiz did make the comment Patrick is being very cooperative on the MDMN share scam front in terms of providing information / documents etc. So perhaps they can build something from there, assuming the Days end up with clean hands and feet after all the MDMN investigation plays out.
Thanks very much for this CHG.
Ditto what TradeRich said. Also, a very BIG THANKS to Wiz for calling us together after the meeting and sharing his thoughts and answering our questions on this after the session ended.
Please forgive me if this is out of line due to the nature of the topic…
I recall Mr. Day Senior, the original principal of ARTCO and the Day brother’s dad, sadly passing a few years back. Surely he either was completely unaware of the share discrepancy OR the fleecing began once the Day’s assumed responsibility of the Transfer Agency. Can we correlate share dumping uptick with his passing?
Anybody have a level 11 that they can share??
Thanks for the chart
Anyone have any insight as to where Cerro Q3 financials are? So far I have not received a response from the company.
