I received $177 from a securities litigation settlement related to stock I owned. Taxable? Capital gain? Dividend?

[Carl]

What tax reporting document did you receive for that? 1099-Misc? 1099-R? Something else? What box is the income reported in?

[coopcope]

No form.   A letter attached to the check from the law firm that says "The tax treatment of this distribution varies based upon the recipient's tax status and tratment of his, her or its investments."  I owned the relevant stock in a taxable account.

[mesquitebean]

So you no longer have any basis in the stock shares in question?    Was this litigation over the value of the stock shares while you had or sold them?

[coopcope]

I owned and sold these Bank of America shares at least five years ago.   The suit was over alleged securities fraud in connection with the acquisition of Merrill Lynch.

[mesquitebean]

I'm not a tax person, but there may be one who joins in the thread at some point.   I don't know if the following will be right for you or not.  I will just tell you this anecdotally as to how I handled something similar.    I had something very similar happen to me with a mutual fund company.      I had sold shares a couple years earlier, and then there was a settlement for some mismanagement of the share values.   Since it had been over a year, and since I no longer had the mutual fund shares,  I reported it as a long-term capital gain on Form 8949 with a zero basis.

[coopcope]

Thanks.   I was thinking along the same lines.   But maybe a tax person will chime in.

[Hal_Al]

I am a tax person. epo39b is correct, report it as a "sale" of stock on form 8949. Your proceeds are $177 and cost basis 0.

[taxlady3]

I know this is an old thread, but I have the same problem but I still own the stock.  It also is in my traditional IRA. Not sure where to enter this.

[rjs]

@taxlady3 - Please post your follow-up question in the thread where you posted your original question about this payment a couple of days ago. Keep all the discussion of your question in one place. It's too confusing and hard to follow, and hard to see the whole picture, if information is scattered in multiple threads.

[Opus 17 · Accepted solution]

BoA has made a lot of legal settlements lately.  Is it this case?  http://www.reuters.com/article/us-bofa-lawsuit-idUSBRE88R0PR20120928

You may not get a 1099-B if the amount is under $600.  The problem is figuring out whether this should be treated as:

1. "because of the fraud, my BoA shares were worth less when I sold them" (the payment is short or long term cap gain depending on how long you owned the shares), or

2. "because of the fraud, BoA paid a smaller dividend" (in which case this should be taxed as a dividend), or

3. "because of the fraud, BoA is paying a simple penalty to former shareholders" (the payment is simple income)

Since the difference between LT cap gains (15%) and anything else (25% or 28% for most taxpayers) is not a lot of money for a payment of only $177, and because I'm not sure how to enter it in the program as a long term cap gain (you may have to play some tricks to get Turbotax to treat it that way), my suggestion is just to report it as miscellaneous income and pay your regular marginal rate.

If you really want to treat it LT cap gains to save the extra $20, I think one of the previous users can probably help you figure out how to get Turbotax to report it that way.  It's probably fair to treat it that way, but I would want to read more about how the plaintiffs in the lawsuit alleged they were harmed--if they alleged loss of share price, that would make it an easier call for LT cap gains.