Claims Court Decision Worth Reading


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D

Dick Adams

Alan said:
Alan wrote:
I should have added that this case was argued by Burgess J. W.
Raby, a highly respected tax attorney.
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. <G>

Nice case. ;)

Dick
 
A

Alan

Dick said:
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. <G>

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.
 
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A

Alan

Vic said:
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.
 
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