Dividend Exclusion

One form of dividend exclusion: dividend bullying. A group of dividends won't let another dividend with a weird nose or fanatical attachment to the Lord of the Rings franchise play in any of their dividend games.

The other kind of dividend exclusion relates to the tax code. It refers to an IRS rule that lets companies exclude some dividends from their taxes.

GloboWorldTransNational is a conglomerate that owns investments all over the world. This portfolio includes a stake in U.S.-based Everhard Girders Inc., a well-known maker of steel and loin cloths. GloboWorld receives a dividend from the shares it owns in Everhard. Under dividend exclusion, a proportion of these get left out of the calculation for GloboWorld's corporate tax.

The theory behind the rule is that dividends get paid out from after-tax profit. Everhard Girders brings in money from the sale of steel and loin cloths. It pays taxes on its profit from those sales. Then, with the money leftover after paying taxes, it pays dividends to its shareholders. That money has already been taxes once at the corporate level. To re-tax it again when GloboWorld receives its dividend check would represent double taxation...a big faux pas in tax code circles.