Where to put stock litigation refund??


G

g20zoom

For my CHTR stock, I joined a class action lawsuit. In
return, I was sent a mere $20 check a long time later. It
came in 2006.

Does anyone know where I should report this on my 1040? The
check had some stub to say it should be taxed, but I didn't
receive any end of the year form, so I'm lost where to put
it.

Thanks in advance!

-joe
 
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B

Benjamin Yazersky CPA

For my CHTR stock, I joined a class action lawsuit. In
return, I was sent a mere $20 check a long time later. It
came in 2006.

Does anyone know where I should report this on my 1040? The
check had some stub to say it should be taxed, but I didn't
receive any end of the year form, so I'm lost where to put
it.
its an offset to your loss in the stock

so, if you sold it, the $20 recovery would be a capital gain

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
 
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G

g20zoom

its an offset to your loss in the stock
so, if you sold it, the $20 recovery would be a capital gain
I did not sell the stock (very unfortunate)....so is it
still considered a gain? or can I just leave it off my
taxes?

Thanks again
 
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G

g20zoom

What if I never sold the stock?
Unfortunately I'm still holding it....
 
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S

Seth Breidbart

its an offset to your loss in the stock
I did not sell the stock (very unfortunate)....so is it
still considered a gain? or can I just leave it off my
taxes?
I'd consider it a reduction in basis (so not taxable now,
but reduces your capital loss or increases your capital gain
when you do sell).

Seth
 
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A

Andrew

What if I never sold the stock?
Unfortunately I'm still holding it....
Thinking out loud here; what happens if that particular
stock was held in an IRA and became worthless? I owned Enron
at some point and am a member (supposedly) of multiple class
action lawsuits.

Regards -

- Andrew
 
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I

Ira Smilovitz

What if I never sold the stock?
Unfortunately I'm still holding it....
Then it is a return of capital, reducing your cost basis in
the stock.

Ira Smilovitz
 
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L

ltsllc

g20z...@gmail.com said:
What if I never sold the stock?
Unfortunately I'm still holding it....
There are two issues involved.

1. Is the money you received ordinary income or a capital
gain, and

2. Is the money you received a gain or a recovery on your
basis in the stock.

The IRS will use the "origin of the claim" test to help
determine the answers to the 2 issues. So you will need to
look at the original lawsuit as well as the settlement or
the judgement papers to help the determination.

The IRS usually will argue it is ordinary income while
taxpayers will usually argue it is a long-term capital gain.

However, for all practical purposes, the $20 amount is so
small it won't make much of a difference on your tax return
if you report it as ordinary income on Form 1040 line 21 or
on Schedule D as a long-term capital gain.

Rudy
www.LizcanoTaxServicesLLC.com

Disclaimer: The posted answer is for educational purposes
only and Lizcano Tax Services, LLC and/or Rodolfo Lizcano
have not been engaged to render any tax, accounting, legal,
or other professional services.
 
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M

Mark Bole

its an offset to your loss in the stock
I did not sell the stock (very unfortunate)....so is it
still considered a gain? or can I just leave it off my
taxes?
To be treated as a capital gain, the proceeds from the
lawsuit (less any attorney fees) would have to be clearly
and directly tied to a previous capital loss.

Not knowing the exact nature of the lawsuit, the most likely
answer is that the $20 is "other income" on line 21 of your
form 1040, and yes you do have to report it, even though the
payer was not required to send you a year-end tax form.

-Mark Bole
 
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M

MyVeryOwnSelf

its an offset to your loss in the stock
I did not sell the stock (very unfortunate)....so is it
still considered a gain? or can I just leave it off my
taxes?
I was in this situation a few times. I subtracted the amount
from the basis of the shares. So my tax return will be
affected when the shares are ultimately sold.

My thinking was that the litigation asserted I paid too much
for the shares, and the recovery is a correction of that.

(Disclaimer: I'm not a tax pro.)
 
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S

Seth Breidbart

Andrew said:
(e-mail address removed) wrote:
Thinking out loud here; what happens if that particular
stock was held in an IRA
If it was held in an IRA, the payment from the lawsuit goes
into that IRA and tax treatment isn't relevant.
and became worthless?
It doesn't matter if it did or didn't.

Seth
 
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A

Andrew

Seth said:
If it was held in an IRA, the payment from the lawsuit goes
into that IRA and tax treatment isn't relevant.
Thanks Seth - that seems logical. Do you happen to have a
pointer to an IRS pub that I can refer to that shows me
this?

I would hate to put in the $ into my (now nondeductible) IRA
and find out that I had a problem later on. (Of course,
that's assuming I even get anything out of the class action
lawsuit.)

Regards -

- Andrew
 
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P

Phil Marti

Thanks Seth - that seems logical. Do you happen to have a
pointer to an IRS pub that I can refer to that shows me
this?
You might draw some inference from Pub 590, but I doubt
there's a specific reference. If you go to section 408 of
the Internal Revenue Code you'll find that the IRA is a
separate tax-exempt entity from its beneficiary. Thus
nothing that goes on totally within the IRA affects the
beneficiary's return.
I would hate to put in the $ into my (now nondeductible) IRA
and find out that I had a problem later on.
If the payment is handled properly it will be made payable
to the IRA, not to you, and you won't have a choice of where
to put it.
 
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G

g20zoom

its an offset to your loss in the stock
I'd consider it a reduction in basis (so not taxable now,
but reduces your capital loss or increases your capital gain
when you do sell).
Thanks for everyone's input and logical explanations!
I like what a few people said how it's not taxable until i
sell the stock. I can see how it's compensation to the
value of the stock and not immediate income.

I've had the IRS come after me for less than $20 when I
messed up my taxes, so I'm not so sure it's neglible to
uncle sam! They can ge their money when I sell it though.
 
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Shyster1040

Thanks for everyone's input and logical explanations! I like
what a few people said how it's not taxable until i sell the
stock. I can see how it's compensation to the value of the
stock and not immediate income.

I've had the IRS come after me for less than $20 when I
messed up my taxes, so I'm not so sure it's neglible to
uncle sam! They can ge their money when I sell it though

******************************

The treatment of your recovery will depend on what it was in
payment of (i.e., origin of the claim). If it was a payment
to settle a claim that as a result of securities fraud you
overpaid for the stock you acquired, then it is a payment
for impairment of capital, and as such will go first to
reduce your basis in the stock, and once that basis hits $0,
be treated as capital gain.

Since you still own the stock, you would simply reduce your
basis in the stock.

If in a prior year you had already sold the stock or had
claimed a deduction for worthless stock, then you would
include the amount received as capital gain.

For authority, see, e.g., Dobson v. CIR, 320 US 489 (1943);
Boehm v. CIR, 146 F2d 553 (2d Cir. 1945), aff'd w'out
discussion, 326 US 287 (1946); see also, Arrowsmith v. CIR,
344 US 6 (1952).
 
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