topic Mutual insurance company converted to stock in Investors & landlords

Mutual insurance company converted to stock

rhbeck68 — Wed, 29 Sep 2021 18:16:58 GMT

I had homeowner and car insurance with a mutual company that converted to stocks. I was granted 150 shares of stock and after 20 years it is worth ~$11,000. I believe the cost basis would be $0.00 purchase price and therefore 100% of value is capital gains. How do I calculate the capital gains for this if I sell it?

Re: Mutual insurance company converted to stock

Mike9241 — Wed, 29 Sep 2021 19:26:16 GMT

read the following and you'll realize that your tax basis is probably not zero. you should have received from the insurance company documentation as to the tax consequences of demutualization including how to calculate your tax basis. if not, I would suggest going to its website and looking for information in the investor relations section. if you can't find anything then there should be a phone number to call.

That court held that the Dorrances had basis in the stock they received through the demutualization of the insurance companies (Dorrance, CV-09-1284-PHX-GMS (D. Ariz. 4/19/13); see earlier coverage, The IRS had argued its long-standing position that stock received in a demutualization necessarily carries a zero basis. The court rejected this argument, concluding that the Dorrances had basis in their membership rights because they had paid premiums for policies that included policy rights and mutual rights, and that they had basis in the stock because they exchanged those membership rights for the stock.

Re: Mutual insurance company converted to stock

rhbeck68 — Sat, 02 Oct 2021 13:33:23 GMT

On further research it appears the Dorrances use of IPO price use for cost basis was overruled by a higher court. Thus the zero basis appears to be the "correct" process when figuring long term capital gains.

Thanks

Re: Mutual insurance company converted to stock

Hal_Al — Sat, 02 Oct 2021 14:59:38 GMT

@rhbeck68 said "Thus the zero basis appears to be the "correct" process when figuring long term capital gains."

Although the court denied the use of the IPO price as basis, it did allow for a basis of more than zero

"Plaintiffs paid for shares of stock in the demutualized Companies by contributing to the Companies' surplus and by relinquishing voting rights in exchange for the shares. Accordingly, they had a cost basis in the shares of $1,078,128." Reference: https://www.leagle.com/decision/infdco20130319f38

Re: Mutual insurance company converted to stock

Mike9241 — Sat, 02 Oct 2021 16:51:54 GMT

as previously stated your cost basis is probably greater than $0. only the insurance company can provide the information necessary to calculate your basis.

Re: Mutual insurance company converted to stock

Hal_Al — Sat, 02 Oct 2021 17:34:02 GMT

Typically, in these conversions, the policy holders are offered a cash payout or stock. The amount of the cash offer might be considered for the basis in the stock.

Re: Mutual insurance company converted to stock

AmeliesUncle — Sun, 03 Oct 2021 03:00:04 GMT

@rhbeck68 wrote:
How do I calculate the capital gains for this if I sell it?

Your actual question is how to calculate the capital gain. That is the selling price minus your Basis equals your capital gain.