This year I received another partial distribution, and it does not show on any 1099 forms from my broker. The stock is held in escrow and not traded, and will be discontinued when the final distribution is made.
IS my understanding correct that this kind of cash distribution does NOT have to be reported (and taxed!) this year, as long as the stock still has a pending final distribution to be made, even though that doesn't occur until a following year?
If so, that means the excess when the stock basis reached 0 that I reported (and paid tax!) last year was incorrect, and should have been recorded and included as part of the total taxable proceeds after the final distribution and dissolving of the underlying stock shares. Can (should?) I file an amended return for last year to get back the tax I erroneously paid? Do I have a choice, assuming I can decide based on my estimation of my tax rate last year versus a coming year?
If your broker gave you a 1099-DIV, then you were correct to report your stock liquidation exactly as it appeared on the form. It is also feasible that you may want or need to amend your 2019 tax return; however, you should not do it unless the 1099 matches what your broker reported to the IRS. Otherwise, your return will be a likely trigger for an audit. We would advise you to discuss your concerns with your broker and see if they can change your 1099, at which point you can make an amendment to your prior year return.
Thank you! I finally got a revised 1099-B from my broker showing the partial cash liquidation distribution in Box 9. That amount shows up on my IRS 1040-SR form Schedule D, and is taxed in the year the distribution was received.
I didn't bother to check in the voluminous IRS tax code to confirm if these partial distributions I receive after the underlying stock basis reaches $0 should be taxed in the year received, or reported after the final distribution is made (in a later tax year) and the underlying security no longer exists. I assume TT knows how to do this, and my prior year tax return was approved by the IRS with the excess cash distribution amount being taxed in the year the it is received.
Also, maybe if interest to others, after re-considering my concerns if I could file an amended return to recapture the tax I paid if I had reported the excess distribution early rather than after the final distribution was made. My intent was if I could extend the gain to a later year when my joint tax return gross income (and tax!) would go down by quite a bit when my wife retires. In have quite a lot of capital gains losses to offset the income from these distributions, so by filing earlier I didn't pay any added tax out of pocket. I merely used up some of the offsetting carry over loss, which will affect gains in the coming year (or two), but by then I'll be in the lower income tax bracket when my wife retires anyway! So it makes no difference!
Once the return of capital or nontaxable distributions have been received up to the amount of your original cost, all amounts in excess of that basis become fully taxable. It is up to each investor/taxpayer to track this and then begin to report taxable income from these nontaxable/return of capital dividend distributions (receipts even if reinvested) when the basis is zero from recapturing this income tax-free. It's not optional when to report on your tax returns.
If you reported these dividends as taxable when you were not required to, you can amend your returns now as far back as 2017. The 2017 tax return must be filed no later than April 15, 2021. After that date you can no longer receive any type of refund because the statute of limitations will expire. You have some time to amend 2018 and 2019.
[Edited: 03/07/2021 | 11:55a PST]