Friday, August 22, 2008
IRS Gets Black Eye
"A federal appeals court decision could pave the way for a surge in tax-refund claims by holders of insurance policies who sold shares in insurance companies that went public. ... The court ruled that a taxpayer who sold such shares didn't have to pay capital gains on the proceeds. ... The [IRS] has maintained that owners of stock from converted insurers owe capital gains taxes on the full amount of the cash received. ... Burgess Raby, the attorney who brought the case, surmises that the fair market value of the stock at the time of its issuance should count as the owner's cost basis. ... Taxpayers could also argue that their cost basis is determined by their total premiums paid, said [Robert] Wilens, the tax adviser", Jesse Drucker and Liam Pleven at the WSJ, 11 August 2008.
I always felt the IRS position on insurance company demutualizations was wrong and applaud this ruling. I encourage the DOJ not to appeal this case. As to the basis, I agree with Raby to the limit of premiums paid.