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What Is the Adjusted Basis of Common Stock Received from Demutualized Life Insurance Companies?

August 6, 2010

Many people owned life insurance or other policies with life insurance companies and, when those companies became publicly-traded, received shares of common stock.  In the 2008 case of Fisher v. U.S., the U.S. Court of Federal Claims held that the basis for capital gains tax purposes was the fair market value of the stock when it was received, not zero. 

If you have already sold your stock from a demutualized life insurance company and your income tax returns showed the entire sale proceeds as taxable income, you should file amended returns and claim refunds as soon as possible.


2 Comments leave one →
  1. Everett Clift permalink
    March 24, 2011 10:53 pm

    I found your posting just in time. I am in the process of preparing my 2010 income tax return and was puzzeled over the method of determining the reportable income on the sale of stock received as a result of demutualization of John Hancock. The demutualization took place in the year 2000 which somehow involved Manulife I sold the stock in 2010 but cannot get information from John Hancock or Manulife regarding how a basis was to be determined.

    Their answers were incredible! They said there was no basis and had no explanation on how the value of my shares were determined. My response was, “well then, why not send me a million dollars if there is no basis.”

    My question now is, how do I report the income and on what form? Do I use: the capital gains form schedule D, supplemental Income schedule E or just throw it in the mix somewhere?

    Sincerly yours,
    (but puzzled)

    Ev Clift

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