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No Tax Refunds for "Demutualized"

Insurance Company Shareholders
The Internal Revenue Service (IRS) has won a significant victory in the issue of whether shares in "demutualized" insurance companies have a basis. The latest ruling indicates that shares taxpayers received when the insurance companies converted from mutual companies to stock companies have no basis. Based on this new case, taxpayers who received stock are subject to tax on the full selling price when the stock is sold.
 
Since 1986, more than 30 mutual insurance companies have converted to a stock form of ownership. Previous rulings had favored the new shareholders indicating that taxpayers have some basis in the stock. However, the IRS had indicated that they did not agree with the rulings and did not intend to comply with them.
 
Gray, Gray & Gray, along with many other tax advisors, had recommended that clients who had sold their shares file for a protective claim of refund until the situation is finally resolved.But because it disputed the court's ruling, the IRS held all the requests for refunds. With a definitive win in their most recent appeal, the IRS has now begun notifying taxpayers that their refund requests have been refused.
 
Those policyholders who received shares of stock in an insurance company and have not sold them can expect be taxed on their full value when the shares are sold.
 
This question of basis in shares received in demutualization of insurance companies has raged for over a decade. While the IRS has won a major decision it may not be the last. There is a possibility that the Supreme Court will get involved. We will continue to monitor this issue.
 
For more information on this or other tax issues, please contact the Gray, Gray & Gray Tax Department at (781) 407-0300.






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The information contained in this communication (including any attachments and/or re-directs to other online sources) is not intended or written to be used,  and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.
 
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