What is the tax basis for stock from life insurance and disability plans?

October 25, 2002

Subject:  Tax Basis of Stock
Date:  Thu, 12 Sep 2002
From:  Scott

Hi, my wife has a life insurance policy issued by a large US mutual life insurance company, and she received stock when that company recently converted to stock ownership. I am employed by that company, and I also received stock due to my participation in my employer's group life insurance and disability plans. I don't believe my stock grant is considered compensation and taxable as income, but can you clarify that? Also, what is the tax basis for the stock my wide and I received if we decide to sell it? Neither of us paid anything for the stock, other than the normal premiums on the policies.

Thank, Scott

Answer

Date:  Wed, 16 Oct 2002

Hello Scott,

You should have received information packets from the company about the tax results of these transactions. Generally, the tax basis of the stock you received is zero. Selling the stock will result in realization of a capital gain. The IRS has been issuing letter rulings for a number of these reorganizations, including Letter Ruling 200021002.

Good luck!
Mike Gray

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