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Date: Tue, 24 Jul 2012 15:07:36 EDT
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On 7/23/12 8:33 PM, Tom C wrote:
> Taxpayer's investment advisor convinces them to sell the IBM and to
> buy an annuity. State Office of Investment Regulation finds that the
> investment guy gave improper advice. (Like how often you see THAT
> happen?) Demands taxpayer be reimburses for the out- of-pocket tax and
> related effects of the sale.
>
> I calculate that if the taxpapayer was reimbursed, and if that
> reimbursement was treated as ordinary income, they should get a
> payment of, say $50,000.
>
> Investment campany agrees to pay, but they also cite the Arrowsmith
> case, and suggest that the taxpayer may want to consider treating the
> proceeds of the settlement as capital gains.
>
> I'm not crazy about that. Something about it seems a little off-
> point.
>
> What do you guys think?
>
If the reimbursement is for an over payment of federal income taxes due 
to bad advice, then see Clark v. Comm�r, 40 B.T.A. 333 (1939), acq. 
1957-2 C.B. 4, and Rev. Rul. 57-47, 1957-1 C.B. 3 where the 
reimbursement was determined to be not taxable. If the amount received 
goes beyond the excess taxes paid, then you will need to determine the 
reason for the excess in order to characterize it. E.g., if there's an 
amount that represents additional gain on the stock sold had the t/p 
held on to it: = LT Capital Gain.

-- 
Alan
http://taxtopics.net

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