U.S. Tax on Zoom Telephonics Shares Received As A Distribution

Some Zoom Technologies shareholders received Zoom Telephonics shares as a distribution in early October 2009. This discussion is intended to help people receiving the distribution to calculate the impact on their U.S. taxes.

If the shareholder’s basis in Zoom Technologies stock is lower than the fair market value of Zoom Telephonics stock received, the shareholder will have a capital gain for the difference between the value received and the shareholder’s Zoom Technologies basis, the shareholder’s Zoom Technologies basis will drop to zero, and the shareholder’s basis for Zoom Telephonics stock will be the Zoom Telephonics fair market value received. If the shareholder’s basis in Zoom Technologies stock is higher than the fair market value of Zoom Telephonics stock received, the shareholder will not have a taxable gain from the dividend, the shareholder’s Zoom Technologies basis will drop to the shareholder’s original basis less the Zoom Telephonics value received, and the shareholder’s basis in Zoom Telephonics stock will be the Zoom Telephonics fair market value received.

The general rule on this distribution is to determine fair market value on the date of distribution. The first full day of ZMTP trading was October 7, 2009. On that day Zoom began trading on the OTC Bulletin Board and traded 125,866 shares with a low trade of 5 cents and a high trade of $1.80. The general rule on valuing publicly traded stock for tax purposes is that the value on any given day is the average of the high and low selling prices on that day. That average was 92.5 cents on October 7, 2009. We provide this information to be helpful, but please consult your tax advisor when determining the appropriate fair market value for tax purposes.

Shareholders who acquired their Zoom Technologies stock prior to August 7, 2008 should make sure to adjust their basis for the 1-for-5 reverse stock split that happened on August 7, 2008. If someone owned 1,000 shares with a basis of $2 per share before the reverse stock split, after the split that person owned 200 shares with a basis of $10 per share.

Zoom Telephonics recommends that shareholders consult with their own tax advisor to make certain that income taxes are paid correctly.