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Monthly Income Preferred Stock (MIPS) Definition

Definition

The word annual income preferred stock describes your collateral which owns the characteristics of the preferred bonds and stock. Monthly income preferred stock is considered a hybrid dominated industry at the same period because of tax shield loop hole that’s been shut.

Explanation

Monthly income preferred stock (MIPS) is a security issued to the general public using a particular purpose entity (SPE) generated with a parent corporation. These securities typically have a level value of $25.00, and present the holder using cumulative yearly distributions.

The profits received from issuing this favorite stock are given into the parent provider. The interest expenditure obligations that the parent leaves into this special purpose thing are tax allowable. The profits from the interest expenditure payments received by the SPE are subsequently utilized to pay for preferred lien owed to holders of their MIPS.

In the late 1990s, MIPS were exceptionally popular securities. But after a very long struggle with the Internal Revenue Service, the utilization of MIPS like a tax shield was not any more okay.