Tax handling for Enron class action law suit recovery??

Question

Seems like I will finally get some restitution for the small amount of Enron Stock I had in my traditional IRA. I hope that I'll receive some instructions when I finally get a check, but I imagine this has happened in the past that worthless stock in a traditional IRA has a class action settlement and checks are distributed to the former share holders. Apparently, I am lucky enough to finally get my due.

My former position in the stock within the IRA was deemed worthless, and at some point, the FI simply withdrew the book shares from my account.

So now, 5 or so years later, I get a small check as part of the so-called "Newby" class action settlement. What's the tax treatment of this? Am I obligated to put the $ back into the traditional IRA (which I can no longer contribute deductible contributions to now anyway if that has anything to do with this) and that's that? Or can I simply cash it in, knowing (which I don't) that I'll get a 1099MISC later as ordinary income? I haven't a clue what I need to do and what I might get...anyone know?

Alan · Accepted Answer

You should put it in the IRA. Tell the trustee it is a recovery for losses incurred in the IRA and is not a contribution. It will be treated as IRA earnings and will be not be taxed. If you cash it, it is the same thing as taking a distribution from your IRA and will be subject to tax and any early withdrawal penalty. Technically, it is your IRA that would have been part of the class action suit. Any payment should have been made out to IRA account name and not to you personally.

Harlan Lunsford · Answer

And just how are  you so lucky?   Are all stockholders in the money, too?IMWTK!  and fast!ChEAr$,Harlan Lunsford, EA n LAuh huh, me too.

Andrew · Answer

Thanks all both for the info. As far as being lucky, for years Harlan I've been receiving mail about pending lawsuits re/Enron, and stuffed them into a folder. I did the same in my last mailing received last week, but it wasn't until I read an article in the Wall Street Journal on page A13 (1/17/2008) that informed me that "stock holders are learning this week " about our good fortune! $6.79 / share recovery.

Now I don't have the check yet! A hearing on Feb 29 will be held to discuss how the $ will be disbursed. Note in my note I said "when I finally get a check" - maybe I should have read "when I get a check".

(Besides Harlon, I need one of those new Yaesu IF DSP transceivers to replace an old Kenwood TS940 I've been using for years for some good DX work on 20 CW. Dit Dit. 73.)

Harlan Lunsford · Answer

Thanks for the heads up, Andrew. I'll have to check into it for my 6.79 per share. Man oh man, what a year! First I'm going to get a big check for excess credit card fees paid on overseas transactions; then a nice 1200$ tax rebate/prebate maybe in May...... ! This is my lucky year!

However, you may have me mixed up with Art Kamlet who is the resident ham operator on this board. Just because back about 1956 or so I participated in a hamfest and set up a station on top of Blood Mountain in Georgia, didn't exactly carry over as one of today's hobbies. (But after the heavy batteries gave out that cold October night atop the mountain, that beer sure was good!)

ChEAr$, Harlan Lunsford, EA n LA

Arthur Kamlet · Answer

Harlan,Thanks for remembering.   But I guess you let your ticket expire?Mine started out as KN2PZH in 1955 -- back when they had a Novicelicense.

Andrew · Answer

Right you are on that - sri and thanks for the clarification!

Harlan Lunsford · Answer

Actually I never had a "ticket", since we (the other three guys and myself) operated under the college's call letters. (North Georgia College if you can find their current license.)

ChEAr$, Harlan Lunsford, EA n LA

Andrew · Answer

Easy to do that!  W4PYM?  In Dahlonega, GA?

Tax handling for Enron class action law suit recovery??

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