Claims Court Decision Worth Reading

Two points of interest:

1. This case is applicable if and only if the taxpayer took cash instead of stock by having the company sell his shares at the IPO for the initial IPO asking price.
2. The IRS attempted to use a PLR in its defense. Of course the judge caught this and mocked them for it.

Nice case. ;)

Dick

Your point one does not hold up. The stockholder was issued shares in the company and elected to offer those shares to the public as part of the initial offering. I don't think it would matter whether or not he kept the shares and sold them later. The issue here was how one derives cost basis of an asset when the value is not discernible. In this instance, the value of the ownership rights. The judge decided that the "open transaction" exception to the treasury regulation was applicable and that the IRS experts were plain wrong in deciding that the value was zero, especially given the insurance company documents that were issued to the stockholders.

The issues on the table are: how is the IRS going to react to the ruling; and how is the cost basis for others in this situation going to be determined.

Either way, it is in the best interest of all practicing tax preparers to file refund claims (assuming the amount in question justifies the cost) for those clients who paid tax on demutualization shares since 2004.

On Tue, 12 Aug 2008 13:47:51 EDT, snipped-for-privacy@panix.com (Dick Adams) wrote Re Re: Claims Court Decision Worth Reading:

What is a "PLR"?

Private Letter Ruling. They are issued by the IRS at the request of taxpayers seeking in advance the IRS tax treatment on a very specific set of facts. They may not be cited by any other taxpayer. However, they shed light on the how the IRS "thinks" given a certain set of facts.