Almost 1 year ago, a US Tax Court ruled against the IRS and declared that the stock gained through demutualization retained its IPO basis ($27.50) rather than the 0 as the IRS had claimed. However, as I understand it, the IRS can appeal the decision.
If you were doing a Schedule D today, would you choose the $27.50 or be safe with $0 for the basis?
What would need to happen if someone chose the $27.50 and the IRS later (possibly several years later) won the appeal?
The actual case (Fisher vs US) was a US Court of Claims decision. The best analysis of this decision that I have seen is by Ed Zollars, CPA. You can find it at:
It is not clear that the decision would hold up for other demutualizations where the set of facts were different as this case was decided on the specific set of facts. What is clear, is that the IRS presumption of zero basis was not correct. What is also clear, is that basis would need to be allocated between the policy and the shares.
Read Ed's document for a better understanding.
Ed's document was a very understandable explanation as to how we got to where we are.
For what ever it is worth, the IRS accepted (universal sample of 1) a
1040X with the basis changed from 0 to $27.50 and paid the calculated refund.BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.