Disney Payout Poses Tax ‘Conundrum’ for Fox Investors

Investors in 21st Century Fox awaiting $71 billion in dividend payouts from the merger with the Walt Disney Co. will have to make a delicate decision when reporting that income to the IRS.

New Disney, the holding company, considers the distribution taxable. But Fox is essentially inviting shareholders to consider it tax-free. There is some legal precedent to back the latter argument—if shareholders are willing to take that risk.

“This is a classic tax conundrum because investors have evidence that it is taxable and also tax-free,” New York-based tax consultant Robert Willens said. “Are you willing ...