Selling Prudential stock

[C.F.]

I recently sold my Prudential stock which I received when the company went
from mutual to stock. How do I handle the capital gains question? Thank you

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[Pico Rico]

"C.F." <06904433c167cd8735...@example.com> wrote in message
news:ba07f$521691db$43de0cc0$23...@news.flashnewsgroups.com...

>I recently sold my Prudential stock which I received when the company went
> from mutual to stock. How do I handle the capital gains question? Thank
> you
>

flip a coin:

http://www.costbasis.com/stocks/demutualizationshares.html

[remove ps]

C.F. wrote:

> I recently sold my Prudential stock which I received when the company
> went from mutual to stock. How do I handle the capital gains
> question? Thank you

The purchase date of the mutual fund is the purchase date of the stock
it got converted to.

[ira smilovitz]

On Friday, August 23, 2013 11:44:54 AM UTC-4, remove ps wrote:
> C.F. wrote:
>
>
>
> > I recently sold my Prudential stock which I received when the company
>
> > went from mutual to stock. How do I handle the capital gains
>
> > question? Thank you
>
>
>
> The purchase date of the mutual fund is the purchase date of the stock
>
> it got converted to.

This is just wrong. There was no mutual fund and, if you read the link provided by Pico Rico, you would know that there is no definitive answer at this time.

Ira Smilovitz

[remove ps]

ira smilovitz wrote:

> >
> > > I recently sold my Prudential stock which I received when the
> > > company
> > > went from mutual to stock. How do I handle the capital gains
> > > question? Thank you

> > The purchase date of the mutual fund is the purchase date of the
> > stock it got converted to.
>
> This is just wrong. There was no mutual fund and, if you read the
> link provided by Pico Rico, you would know that there is no
> definitive answer at this time.

Interesting, I thought there was a mutual fund and it git converted
into a stock. This mutual form of ownership to a stock insurance
corporation is a new concept for me.

[Stuart A. Bronstein]

"remove ps" <removeps...@yahoo.com> wrote:
> ira smilovitz wrote:
>
>> > > I recently sold my Prudential stock which I received when the
>> > > company went from mutual to stock. How do I handle the capital
>> > > gains question? Thank you
>
>> > The purchase date of the mutual fund is the purchase date of the
>> > stock it got converted to.
>>
>> This is just wrong. There was no mutual fund and, if you read the
>> link provided by Pico Rico, you would know that there is no
>> definitive answer at this time.
>
> Interesting, I thought there was a mutual fund and it git converted
> into a stock. This mutual form of ownership to a stock insurance
> corporation is a new concept for me.

Mutual insurance company means that the company is technically owned
by its customers. Nothing is paid for ownership, and it only lasts
as long as someone has a policy. If he stops having a policy, he
gets the dividends (rebate) earned while he was a "member," but
that's normally it.

So what is the basis? When is the acquisition date? It's hard to
tell without a rule to go by.

--
Stu
http://DownToEarthLawyer.com

[Avrum Lapin]

In article <XnsA225CD7E5141sp...@130.133.4.11>,

"Stuart A. Bronstein" <spam...@lexregia.com> wrote:

> "remove ps" <removeps...@yahoo.com> wrote:
> > ira smilovitz wrote:
> >
> >> > > I recently sold my Prudential stock which I received when the
> >> > > company went from mutual to stock. How do I handle the capital
> >> > > gains question? Thank you
> >
> >> > The purchase date of the mutual fund is the purchase date of the
> >> > stock it got converted to.
> >>
> >> This is just wrong. There was no mutual fund and, if you read the
> >> link provided by Pico Rico, you would know that there is no
> >> definitive answer at this time.
> >
> > Interesting, I thought there was a mutual fund and it git converted
> > into a stock. This mutual form of ownership to a stock insurance
> > corporation is a new concept for me.
>
> Mutual insurance company means that the company is technically owned
> by its customers. Nothing is paid for ownership, and it only lasts
> as long as someone has a policy. If he stops having a policy, he
> gets the dividends (rebate) earned while he was a "member," but
> that's normally it.
>
> So what is the basis? When is the acquisition date? It's hard to
> tell without a rule to go by.
>
> --
> Stu
> http://DownToEarthLawyer.com

The acquisition date is the date of demutualization, the cost basis is
the value of the stock at that date per " the 11/15/06 order in Fisher
v. U S No 04-1726T subsequently affirmed in an 8/08 decision of the US
Court of Federal Claims which refers to stock received at the date of
demutualization of the Prudential Insurance Company"

Somewhere I have a copy of the order but I can't find it - possibly
buried in the garage with my 2005 tax return

[Stuart A. Bronstein]

Avrum Lapin <avru...@verizon.net> wrote:

> The acquisition date is the date of demutualization, the cost
> basis is the value of the stock at that date per " the 11/15/06
> order in Fisher v. U S No 04-1726T subsequently affirmed in an
> 8/08 decision of the US Court of Federal Claims which refers to
> stock received at the date of demutualization of the Prudential
> Insurance Company"

In Fisher (82 Fed. Cl. 780) the court applied the open transaction
doctrine, allowing the taxpayer to treat all premium payments as
capital investment. The case was affirmed without opinion. Fisher
v. United States, 333 Fed. Appx. 572 (2009).

Subsequent courts noted that in this kind of case the open
transaction doctrine may be inappropriate. This is because
insurance policies are often held until the death of the owner, at
which time the basis becomes irrelevant if there has been no
demutualization. So applying all premiums paid toward basis would
result in little or no tax on the sale of the stock after
demutualization, and it could not be made up when the death benefit
is paid.

In Fisher the parties both argued that the basis could not be
adequately determined. One commentator noted that the value of
stock can be determined on demutualization, so applying the open
transaction doctrine is inappropriate in this kind of situation.
Paul Galindo, Revisiting the "Open Transaction" Doctrine: Exploring
Gain Potential and the Importance of Categorizing Amounts Realized,
63 Tax Lawyer 221, 234 (2009). The courts have noticed this, and
for that reason may not follow Fisher.

The point is, at this time there is no definitive rule on what the
basis is, and when the holding period starts.

--
Stu
http://DownToEarthLawyer.com

[remove ps]

Stuart A. Bronstein wrote:

> The point is, at this time there is no definitive rule on what the
> basis is, and when the holding period starts.

Perhaps one approach is to see what the premiums would have been if the
company was a stock company from the start. As a mutual fund company
perhaps the premiums are $50 a month, but as a stock company $60 a
month, so the discount is $10 a month. They can do an average of all
companies (for the same level of coverage/service). That $10 a month
could be the cost basis, not the full premium of $50 a month. This
gives a small non-zero cost basis, not as generous as the "open
transaction" method.

[Kurt Ullman]

In article <xn0im6yt...@news.aioe.org>,

"remove ps" <removeps...@yahoo.com> wrote:

> Stuart A. Bronstein wrote:
>
> > The point is, at this time there is no definitive rule on what the
> > basis is, and when the holding period starts.
>
> Perhaps one approach is to see what the premiums would have been if the
> company was a stock company from the start. As a mutual fund company
> perhaps the premiums are $50 a month, but as a stock company $60 a
> month, so the discount is $10 a month. They can do an average of all
> companies (for the same level of coverage/service). That $10 a month
> could be the cost basis, not the full premium of $50 a month. This
> gives a small non-zero cost basis, not as generous as the "open
> transaction" method.

This what Prudential itself had to say.
http://www.prudential.com/view/page/public/18538?lp=18537
"In general, most registered shareholders received their shares
through Prudential's demutualization. Prudential received a Private
Letter Ruling from the IRS indicating that the cost basis of shares
received through a demutualization is zero. Prudential is aware of a
court ruling regarding the cost basis of demutualization shares, and
that the IRS� appeal of this ruling was denied. It is our understanding
that the IRS is currently awaiting a Federal District Court ruling and
is evaluating their next steps. Please consult your personal tax advisor
for any tax-related questions you may have regarding the cost basis of
shares issued as part of a demutualization."

Or to put it another.. heck if anyone knows.
--
America is at that awkward stage. It's too late
to work within the system, but too early to shoot
the bastards."-- Claire Wolfe

[Pico Rico]

"Kurt Ullman" <kurtu...@yahoo.com> wrote in message
news:79-dnaSwdPVhcoXP...@earthlink.com...

while I think the IRS position that the cost basis is zero makes no sense,
the IPO raised $3B, so the argument is certainly not over chump change.

[Stuart A. Bronstein]

"remove ps" <removeps...@yahoo.com> wrote:
> Stuart A. Bronstein wrote:
>
>> The point is, at this time there is no definitive rule on what
>> the basis is, and when the holding period starts.
>
> Perhaps one approach is to see what the premiums would have been
> if the company was a stock company from the start. As a mutual
> fund company perhaps the premiums are $50 a month, but as a
> stock company $60 a month, so the discount is $10 a month. They
> can do an average of all companies (for the same level of
> coverage/service). That $10 a month could be the cost basis,
> not the full premium of $50 a month. This gives a small
> non-zero cost basis, not as generous as the "open transaction"
> method.

That's similar to the method one court suggested (but did not decide
because it didn't need to in that case).

One approach might be to look at the premiums are higher for the
mutual company than for stock companies, the difference paid over the
past year could be basis.

--
Stu
http://DownToEarthLawyer.com

[Bob Sandler]

ira smilovitz wrote:
>. . . there is no definitive answer at this time.

Stuart A. Bronstein wrote:
>The point is, at this time there is no definitive rule on what the
>basis is, and when the holding period starts.

So as a practical matter, what do we tell the OP? What does
he put on his tax return when he sells the stock? If you
were his tax preparer, what would you do?

Bob Sandler

[Barry Margolin]

In article <o8fk199u9rjvkrqkj...@4ax.com>,

Bob Sandler <bob_u...@yahoo.com> wrote:

> ira smilovitz wrote:
> >. . . there is no definitive answer at this time.
>
> Stuart A. Bronstein wrote:
> >The point is, at this time there is no definitive rule on what the
> >basis is, and when the holding period starts.
>
> So as a practical matter, what do we tell the OP? What does
> he put on his tax return when he sells the stock? If you
> were his tax preparer, what would you do?

I'm not a tax professional, but here's my two cents. There's two ways
you can go:

1. The safe, expensive way: Use the ruling that says the basis is 0, and
declare all the proceeds as capital gains. If a more favorable ruling
comes out in the next 3 years, file amended returns to get back the
excess tax.

2. The less expensive way: Use the more favorable ruling, minimizing the
capital gains. If he gets audited, they'll probably say that he should
have declared zero basis, and make him pay the additional tax and
interest. You could probably make a case that he followed this ruling in
good faith, so maybe they won't assess a penalty as well.

--
Barry Margolin
Arlington, MA

[Stuart Bronstein]

Bob Sandler <bob_u...@yahoo.com> wrote:
> Stuart A. Bronstein wrote:

>>The point is, at this time there is no definitive rule on what the
>>basis is, and when the holding period starts.
>
> So as a practical matter, what do we tell the OP? What does
> he put on his tax return when he sells the stock? If you
> were his tax preparer, what would you do?

My personal approach would be to see if the policy he bought cost
more than if he had gotten an identical policy from a non-mutual
insurance company. If it was, then the difference (that was not
returned to him as dividends in the past) would be his basis.

If the cost was the same, I'd take the basis as zero.

--
Stu
http://DownToEarthLawyer.com

[SD]

>
> If you were his tax preparer, what would you do?
>

Ask the client if they have the stomach for getting into an argument with the IRS.

[Kurt Ullman]

In article <XnsA2277B89A5A5Es...@130.133.4.11>,

Stuart Bronstein <spam...@lexregia.com> wrote:

> Bob Sandler <bob_u...@yahoo.com> wrote:
> > Stuart A. Bronstein wrote:
>
> >>The point is, at this time there is no definitive rule on what the
> >>basis is, and when the holding period starts.
> >
> > So as a practical matter, what do we tell the OP? What does
> > he put on his tax return when he sells the stock? If you
> > were his tax preparer, what would you do?
>
> My personal approach would be to see if the policy he bought cost
> more than if he had gotten an identical policy from a non-mutual
> insurance company. If it was, then the difference (that was not
> returned to him as dividends in the past) would be his basis.
>
> If the cost was the same, I'd take the basis as zero.
>

My understanding from when I went through the same thing right after
the change, the company before the change was owned by the policy
holders. WHen it was demutalized, the stock essentially was payment for
my part of the mutual company. It would seem that the IPO price would be
the basis, but I don't know how the fact it was life insurance and what
the ramifications of that would be, is beyond my comprehension (grin).



Which brings up another question. I got rid of my shares pretty soon
after demutalization in 2003 or so. Is it safe to assume that even if
the courts decide the basis was wrong that I am WAY past the time I
could do anything about it?

--
America is at that awkward stage. It's too late
to work within the system, but too early to shoot
the bastards."-- Claire Wolfe

[Pico Rico]

"Stuart Bronstein" <spam...@lexregia.com> wrote in message
news:XnsA2277B89A5A5Es...@130.133.4.11...

> Bob Sandler <bob_u...@yahoo.com> wrote:
>> Stuart A. Bronstein wrote:
>
>>>The point is, at this time there is no definitive rule on what the
>>>basis is, and when the holding period starts.
>>
>> So as a practical matter, what do we tell the OP? What does
>> he put on his tax return when he sells the stock? If you
>> were his tax preparer, what would you do?
>
> My personal approach would be to see if the policy he bought cost
> more than if he had gotten an identical policy from a non-mutual
> insurance company.

how in the world would someone do that, especially over a period of many
years? Good in theory.

Here is my thinking:

A modified version of Barry's #1:

1. The safe, expensive way: Use the ruling that says the basis is 0, and
declare all the proceeds as capital gains. If a more favorable ruling
comes out in the next 3 years, file amended returns to get back the
excess tax.

Modification: IMMEDIATELY file a protective claim for refund.

We really should be reading the link I provided, and its links to much more
detailed information.

[Arthur Kamlet]

In article <BKadnd_Ir95QxIfP...@earthlink.com>,

Kurt Ullman <kurtu...@yahoo.com> wrote:
>
>Which brings up another question. I got rid of my shares pretty soon
>after demutalization in 2003 or so. Is it safe to assume that even if
>the courts decide the basis was wrong that I am WAY past the time I
>could do anything about it?

Yes.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

[Stuart Bronstein]

"Pico Rico" <Pico...@nonospam.com> wrote:
> "Stuart Bronstein" <spam...@lexregia.com> wrote

>>
>> My personal approach would be to see if the policy he bought
>> cost more than if he had gotten an identical policy from a
>> non-mutual insurance company.
>
> how in the world would someone do that, especially over a period
> of many years? Good in theory.

Many years? A mutual company gives dividend rebates to its
"members" each year. And if you don't renew your policy eacy year,
you get nothing. So my thinking is that you only go back to the
beginning of that one policy year.

> Here is my thinking:
>
> A modified version of Barry's #1:
>
> 1. The safe, expensive way: Use the ruling that says the basis
> is 0, and declare all the proceeds as capital gains. If a more
> favorable ruling comes out in the next 3 years, file amended
> returns to get back the excess tax.

That's certainly the safest, though you will likely be paying more
tax than you actually owe.

> Modification: IMMEDIATELY file a protective claim for refund.

How much of a refund do you ask for?

> We really should be reading the link I provided, and its links
> to much more detailed information.

I read your link. But it provides no real information. You have to
read all the relevant cases and see what each is based on before you
can make a good decision on what to do in any individual case.

As I mentioned earlier, the Fisher case (which provided that the
stock had a zero basis) shouldn't apply to most other situations. In
that case the IRS argued for zero basis, and the taxpayer argued that
all premiums paid in the past should go toward basis. The court had
no evidence or legal arguments presented to make any other decision
than one of those two, and the taxpayer's argument was determined to
be incorrect, leaving only the IRS position.

If you use some other reasonable approach, at least one court has
said that Fisher doesn't apply. And that makes sense, since a case
should only have precedential value to a case based on similar facts
and law.

--
Stu
http://DownToEarthLawyer.com

[remove ps]

Barry Margolin wrote:

> In article <o8fk199u9rjvkrqkj...@4ax.com>,
> Bob Sandler <bob_u...@yahoo.com> wrote:
>
> > ira smilovitz wrote:
> > > . . . there is no definitive answer at this time.
> >
> > Stuart A. Bronstein wrote:
> > > The point is, at this time there is no definitive rule on what
> > > the basis is, and when the holding period starts.
> >
> > So as a practical matter, what do we tell the OP? What does
> > he put on his tax return when he sells the stock? If you
> > were his tax preparer, what would you do?
>
> I'm not a tax professional, but here's my two cents. There's two
> ways you can go:
>
> 1. The safe, expensive way: Use the ruling that says the basis is 0,
> and declare all the proceeds as capital gains. If a more favorable
> ruling comes out in the next 3 years, file amended returns to get
> back the excess tax.
>
> 2. The less expensive way: Use the more favorable ruling, minimizing
> the capital gains. If he gets audited, they'll probably say that he
> should have declared zero basis, and make him pay the additional tax
> and interest. You could probably make a case that he followed this
> ruling in good faith, so maybe they won't assess a penalty as well.

With option (2) perhaps form 8275 or 8275-R (the disclosure forms)
should be filed. Disclose that you are using a non-zero stock basis,
and if later the IRS disagrees, they will not assess penalties (but I'm
not sure if they assess interest).

[Pico Rico]

"Stuart Bronstein" <spam...@lexregia.com> wrote in message

news:XnsA227DCCA3C6DAs...@130.133.4.11...

> "Pico Rico" <Pico...@nonospam.com> wrote:
>> "Stuart Bronstein" <spam...@lexregia.com> wrote
>>>
>>> My personal approach would be to see if the policy he bought
>>> cost more than if he had gotten an identical policy from a
>>> non-mutual insurance company.
>>
>> how in the world would someone do that, especially over a period
>> of many years? Good in theory.
>
> Many years? A mutual company gives dividend rebates to its
> "members" each year. And if you don't renew your policy eacy year,
> you get nothing. So my thinking is that you only go back to the
> beginning of that one policy year.

If they give back all the capital each year via dividend rebates, how do
they stay in existence? Anyway, i don't know how this works, so maybe the
correct (or at least the most convienient, sort of correct) answer is just
count one year. This may vary for each company.

>
>> Here is my thinking:
>>
>> A modified version of Barry's #1:
>>
>> 1. The safe, expensive way: Use the ruling that says the basis
>> is 0, and declare all the proceeds as capital gains. If a more
>> favorable ruling comes out in the next 3 years, file amended
>> returns to get back the excess tax.
>
> That's certainly the safest, though you will likely be paying more
> tax than you actually owe.
>
>> Modification: IMMEDIATELY file a protective claim for refund.
>
> How much of a refund do you ask for?

I would ask for the whole thing. I am sure that would protect your postiion
even if you end up with less of a refund. You cannot ask for soemthing and
then increase it later.

>
>> We really should be reading the link I provided, and its links
>> to much more detailed information.
>
> I read your link. But it provides no real information. You have to
> read all the relevant cases and see what each is based on before you
> can make a good decision on what to do in any individual case.

well, that IS "real information". Sure, it is confusing and unsetteld, but
this is the current state of the situation.

This link sums it up pretty well, and includes a section heading "Tax
Planning for Clients", which seems to spell out the correct approach to take
given the unsettled nature of this matter:
http://www.kiplinger.com/letterlinks/demutualization