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How to handle Cash Liquidation Distribution

I bought a stock in 2002. Paid $2000.

The company closed its doors in 2003 and liquidated its assets to the shareholders. I received $2500, and treated this as a "sale" (since the company was out of business), and I claimed $500 of LT capital gain for that year. This may or may not have been correct, but that is what I did.

In my brokerage account, this stock changed name to "COMPANY INC XXX PLAN OF LIQUIDATION EFF 11/04/03", I never paid any attention to it - it had no value, and I couldn't sell it.

In 2010, I received a $200 as a "cash liquidation distribution" for "COMPANY INC XXX PLAN OF LIQUIDATION", which was reported to me in box

8 of the 1099-DIV, and it finally disappeared from my account. The brokerage also sent me a gain/loss report showing the basis as the original purchase price, giving me a theoretical $1800 loss.

How do I handle this?

My feeling is that since I treated the original liquidation as a sale, my basis is $0 and I have to LT capital gain of $200 to report on schedule D. But I don't know if this is correct.

Thanks.

Reply to
way222
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Shot answer: That's what I'd do -- report as a long term transaction wih zero basis, 200 gain.

Longer answer: I am uncertain if the original report for 2003 is open of not. There is an exception to the three rule open year rule when you discover worthless stock. But here you thought it was worthless in 2003. However it seems your reported loss should be corrected and the worthless stock exception allows you to amend up to seven years, and if correct, you should also amend.

Reply to
Arthur Kamlet

. . .

He reported a _gain_ in 2003.

If the $2500 was a return of capital dividend, it's still ltcg of $500 and a basis reduction to $0, so I don't see anything to amend. (Possibly he should have split the basis between the $2500 and the remaining stock that paid later, but I think he did the right thing based on 2003 knowledge.)

Seth

Reply to
Seth

Then he would amend to show the gain as $300, instead of the original $500? If so, does he get paid interest? Do states accept this 7 year amended tax return?

Reply to
removeps-groups

States which base their tax code on the IRC (e.g. California) do accept the longer period of limitations.

However, the only time it arose for me was as a counterclaim on a case that went for BoE appeal where the FTB did not accept it - but it was granted as part of the BoE computation of the outcome. [The IRS had accepted and processed the related federal claim for the worthless stock.]

Reply to
D. Stussy

,

I don't think there was any way to split the basis. What remained in my account had a different name than the original stock, its price was listed as "N/A" and its value was listed as "N/A". There was no way to anticipate what the value would someday be, or if it even would have any value. I'm not 100% sure what this security even represented, considering the company was gone.

To go back now to 2003 retroactively split the basis would result in no net change in taxes, for a few pennies in possible interest from the IRS it hardly seems worth it.

I'm going to stick with using a zero basis.

Reply to
way222

Lo and behold, I just got another 1099-DIV in the mail, that now shows the basis as zero.

Reply to
way222

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