A court ruling last week by the U.S. Court of Federal Claims could increase claims for tax refunds by insurance policy holders who sold stock in insurance providers that went public.
The ruling could also apply to current shareholders, according to The Wall Street Journal. It includes shareholders in companies such as MetLife and Prudential Financial, which converted from mutually owned companies to publicly traded entities. The court ruling says that sales of stock in such companies should not be subject to capital gains tax if the amount received is less than the taxpayer's cost basis in the insurance policy.
"It's going to affect anyone who has received stock received in a demutualizing transaction, or cash in lieu of stock," said Burgess Raby, the attorney who represented the plaintiff, Eugene A. Fisher. He argued that Fisher, the trustee who oversaw a trust that held a Sun Life insurance policy, had paid premiums on the insurance policy, which should count toward the cost basis in the stock.
Raby estimates that there are 30 million policyholders of demutualized insurance companies. "Each of those policyholders, depending on how they received the compensation in the demutualization transaction, will have to evaluate how the case affects them, or their professional advisors will have to determine it for them," said Raby.
C.D. Ulrich, a CPA in Baxter, Minn., has been tracking developments in the matter at his Web site, Demutualization.biz, and includes advice for filing claims for tax refunds. However, he cautions that policyholders should be aware of the three-year statute of limitations that applies in the case.
"Anyone who paid zero-basis taxes should file an immediate amended return to avoid the statute of limitations from running out," he noted. He also has been compiling a database of claimants for a possible class-action case. He estimates that there were 11 million policyholders each with MetLife and Prudential, with total distributions exceeding $20 billion.
Ulrich faults the IRS for not doing more to inform policyholders of their rights. "It certainly is contradictory to their mission statement that policy holders pay only the proper amount of tax, not too much or too little," he said.
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