Discussion:Cost basis of demutualized company stock
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Discussion Forum Index --> Tax Questions --> Cost basis of demutualized company stock
| 22 February 2006 | |
| I have a client who sold stock received from a demutualization of their medical insurance company. What cost basis do I use for the stock sale? The client held the stock for 5 years. Could this be considered an involuntary conversion?
Thanks, Rob Buden | |
| 22 February 2006 | |
| The Service has consistently ruled that the cost basis of stock acquired in a life insurance company demutualization is zero. Presumably, they would take the same position on a medical insurance company demutualization. | |
Chautauqua (talk|edits) said: | 22 February 2006 |
| Zero is correct. | |
| 8 March 2006 | |
| Appears we now need to file protective claims for Federal purposes on demutualization sales we reported in 2002 with zero basis until the courts rule. Federal carries a 3 yr statute but CA carries a 4 yr statute. Wonder if CA would conform...guess we need to file protective claims for F & CA? (Per Kiplinger Tax Letter 1/27/06.....Fisher, Ct of Fed Claims) | |
| 8 March 2006 | |
| It is an interesting case. You start out with a life insurance policy that has inherent ownership. You get stock and keep policy. Stock has fmv on date of distribution. Is policy worth any less? Will clients pay for protective claims? | |
| 8 March 2006 | |
| For a $12k potential refund and in excess of $35k once you add the 2001 state tax refund...almost can't afford to not file them cause we don't know what the courts will rule. Wish that case hadn't happened...especially during tax season. Guess we only need to file each return as the statute approaches expiration. | |
| 3 January 2008 | |
| I have clients in Nevada who recieved funds from the demutualization of a workmans compensation insurance company. Previous to the court case questioning the basis of the stock pay out I was consistenly advised to treat this payout like any insurance demutualization. ( Capital gains treatment and zero basis) Now I am thinking that some portion of the payment is ordinary income because it is a return of fully deductable premuims (Workmans comp insurance). I would appreciate any opinions on this matter. | |
| 3 January 2008 | |
| I have a client with the same situation, but hadn't really considered the capital gain vs ordinary income aspect. I treated the $$ as ordinary income when I did year end projections, but after your question, I'm going to consider that some of the money might be capital gain.
Opinions on how to split will be welcome, or just in general will be welcomed. | |
| 23 October 2008 | |
| A client just forwarded me an article that was in the Sacramento Bee 8/28/08 regarding a ruling by the IRS in Aug, 2008 stating that the IRS ruled that stock distributions by Mutual Life Ins Co in the demutualization process are tax free. Does anyone have any further information on this? | |
Death&Taxes (talk|edits) said: | 23 October 2008 |
| Gosh, the accountant from Minnesota who was the driving force behind this court case [the Court made a ruling, not the IRS and if I recall, the Court is not sure what the basis is but believes there is a basis] became almost a celebrity. The case was Eugene Fisher, Trustee, Seymour Nagan Irrevocable Trust vs US, US Court of Claims, 04-1726T. The court ruled that the value was not discernible, but certainly wasn't zero, and that since in that case, the plaintiffs had not received an amount equal to their cost basis in the policy, they had not realized any income on the sale.
IRS may appeal, but if the money is enough, protective claims should be filed. See Spidell's October 1st issue of the Elder Care Newsletter. | |
| 23 October 2008 | |
| also NATP had a piece recently on this. The topic was discussed here on TA right after the court case. Probably by D&T.
Most of the professional journals have covered this. | |
WD Kebschull (talk|edits) said: | 24 October 2008 |
| Not unlike the Fisher case, here is how it went when IRS did not establish the taxable income when Kohler Company participated in the Mexican government's debt-equity swap program. "Today's opinion concludes that the IRS "played all or nothing, lost all, so gets nothing."
Here is what Howard Bashman wrote on the blog How Appealing "IRS seeks all, but receives nothing, in attempting to tax the consequences of Kohler Company's participation in the Mexican government's debt-equity swap program: In 1987, Kohler, the well-known manufacturer of plumbing products, purchased $22.4 million (USD) in Mexican debt from Bankers Trust for $11.1 million (USD). Then, in exchange for the $22.4 million (USD) in Mexican debt, Kohler received from the Mexican government $19.5 million (USD) worth of pesos that had to be spent in Mexico on projects approved by the government and could not be freely converted to dollars or other foreign currencies until 1998. The Internal Revenue Service increased Kohler's taxable income in the year of the transaction by the difference of $8.4 million between the price that Kohler had paid Bankers Trust for the Mexican debt and $19.5 million. Today, the U.S. Court of Appeals for the Seventh Circuit, in an opinion for a unanimous three-judge panel written by Circuit Judge Richard A. Posner, affirms the grant of summary judgment in favor of Kohler and against the IRS. Today's opinion concludes that the IRS "played all or nothing, lost all, so gets nothing."" | |
| 24 June 2009 | |
| I have been asked to prepare an amended return for a client who received over $100,000 on 1/9/06 from a case simiiar to the Fisher case. I told him he could retain the services of Charles S. Ulrich, the accountant accociated with Court of Claims mentioned by Death & Taxes. Ulrich is asking for a 1/3rd fee if he is succesful. In jest, my client offered my 10%. I don't know enough about this case to accept his offer. Any comments? | |
