Demutualization - finally a court decision

[gindie]

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/default/files/ALLEGRA.Fisher080608.pdf


The IRS is deciding whether to appeal.

 

[audreyh1]

Unfortunately, (or perhaps fortunately) any Prudential shares I received were inside an IRA, therefore taxation issues were mute.

Audrey

 

[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

 

[gindie]

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

You can amend for 3 years (tax year 2005), the IRS has not budged on this.

 

[SecondCor521]

Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.

2Cor521

 

[gindie]

Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.

2Cor521

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.

 

[OAG]

Given the current situation, can I amend to adjust the basis upward? I claimed zero basis before based on the IRS position.

2Cor521

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?