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Demutualization - finally a court decision
09-08-2008, 09:56 PM
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#1
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Full time employment: Posting here.
Join Date: Jul 2004
Posts: 512
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Demutualization - finally a court decision
Didn't see any mention of this here, but at the beginning of August a court ruled on the taxability of shares gained through the demutualization of an insurance company.
Up until that decision, the IRS ruled that the cost basis of such shares is 0, therefore when the shares were sold the entire proceeds would be subject to long-term capital gains.
The decision sets the basis of the shares to be the original stock price on the day of the demutualization.
I am familiar with the Prudential demutualization. The shares were issued at $27.50. Today's closing price was over triple that. Being able to exclude that $27.50 from taxation can be significant.
The decision is at: http://www.uscfc.uscourts.gov/sites/...sher080608.pdf
The IRS is deciding whether to appeal.
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09-08-2008, 10:03 PM
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#2
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 28,095
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Unfortunately, (or perhaps fortunately) any Prudential shares I received were inside an IRA, therefore taxation issues were mute.
Audrey
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09-08-2008, 10:21 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Boise
Posts: 4,921
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I wonder if we'll be allowed to go back and amend tax returns?
I received proceeds from the General American demutualization. Not sure what the basis of that would be.
2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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09-08-2008, 10:31 PM
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#4
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Full time employment: Posting here.
Join Date: Jul 2004
Posts: 512
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 Quote:
Originally Posted by SecondCor521
I wonder if we'll be allowed to go back and amend tax returns?
I received proceeds from the General American demutualization. Not sure what the basis of that would be.
2Cor521
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You can amend for 3 years (tax year 2005), the IRS has not budged on this.
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09-08-2008, 11:36 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Boise
Posts: 4,921
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Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.
2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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09-09-2008, 05:30 AM
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#6
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Full time employment: Posting here.
Join Date: Jul 2004
Posts: 512
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Quote:
Originally Posted by SecondCor521
Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.
2Cor521
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I'm not an accountant, but I believe you can make an amendment to any aspect of your return.
Because of the possibility of an IRS appeal, I'd personally wait as long as I could to try and let the legal aspects iron themselves out and also get the advice of a tax accountant.
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09-09-2008, 05:37 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,632
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Quote:
Originally Posted by SecondCor521
Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.
2Cor521
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If you are in the "window" now I would file the 1040X ASAP and see what they say. If later they (IRS) win their appeal it could be appealed again upward - at least you would have a "decision previously made" to resurrect outside the window dependent on the "final appeal" and/or administrative decision. Isn't Government wonderful?
__________________
Vietnam Veteran, CW4 USA, Retired 1979
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