You're exactly right. It really isn't double taxation. If you received $5 in dividends in cash or otherwise, you would be taxed on that gain. Then say you buy 1 share of stock at $5. Your tax basis in that stock is $5 (you've already paid tax on that $5). If you sell the stock at $10, you would be taxed on the gain of $5. So you're really being taxed incrementally.
|Quoting EMBQA (Thread starter):
I didn't think they could tax you twice on income...? Did I miss something..?
There is nothing in the Constitution that prevents the government from taxing you once, twice, or ten times on the same income. Congress/Treasury/IRS usually try to avoid double taxation schemes (except for C corporations, which are indeed taxed twice, once at the corporate level, and again at the individual level), but that is more of a political/fairness approach than it is a legal one.
[Edited 2008-01-26 12:35:50]