We'll handle your cash liquidation distribution of ... later - Did they?

[Benny H]

Hi.  I imported transactions from my broker (Charles Schwab).  One of the accounts imported items into 1099-DIV, 1099-INT, and stock transactions.  When I was stepping through the 1099-DIV section for one account, it included an amount in Box 9, which I didn't notice at the time.  When I got to the end, I got the following screen:

The only sale in this account was for VALARIS, which I believe did dissolve.

I saw some posts from a couple of years ago but wasn't sure if they applied.  I can't tell if I'm supposed to do something or not :(  I did look in the Investment Income section and there was a stock sale imported but the amount(s) did not match that from Box 9.

Can someone please help me understand what I need to do?

Thanks.

Benny

[MarilynG]

Proceeds from cash liquidation distributions are reported on Form 1099-DIV.  To the extent that the amount of distribution that is in excess of the recipient's original investment is taxable. 

If there is a gain, it is then reported on schedule D.  You would enter that as if you received a 1099-B.  In most cases this is unreported on Schedule D.... normally your basis is greater.  Then the distribution amount is just a reduction in your cost basis.  You would only recognize gains if it fully reduced your basis below 0.

Continue with the interview in TurboTax, and you should be asked for these details.

Click this link for more info on Reporting a Liquidation Distribution. 

[Benny H]

I went through the entire interview process until I had completed all income sections.  I did not get another prompt.

FWIW, I did receive a 1099-B and the import just put the appropriate sections into TurboTax.  I looked at the link but it didn't help because this isn't a manual entry but rather I imported the transactions.

If it helps, here is the single stock transaction corresponding to that 1099-DIV entry:

Since I had a short-term gain (i.e., made more than my cost basis), does that mean that I should report the amount from Box 9 as a short-term capital gain (i.e., I would manually create an entry)?

FWIW, I think that this happened because I had sold my original stock while they were in the process of closing out the company.

Thanks.

Benny

[DianeW777]

Yes. Based on your information, you did use the full cost basis of the stock without yet reporting the liquidating distribution. See the information below about when you must report the amount from box 9.

Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 and/or 9.

Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.

If you are still recovering your cost basis here are the records to keep.

Records to keep: (Required as routine for any dividends and investment purchases)

1. The amounts you paid for this investment from the beginning until all liquidation payments have been received.  This would include any reinvested dividends, if applicable.  
2. Total amount of shares purchased at each purchase date 
3. Total of any prior year (before liquidation) return of capital dividends / nontaxable distributions (shown on Form 1099-DIV)
4. Forms 1099-DIV or all years as proof of any return of capital / nontaxable distributions

These records may be needed until three years after the final liquidation is paid out. If and when you receive liquidating distributions that exceed your cost basis only then do you have a reportable tax sale transaction.

If you have recovered your cost basis and now need to report capital gains use the information at this link.  You will have 'sale proceeds' but zero cost basis. The sales proceeds will be any part of the liquidating distribution that is in excess of your original cost basis.

• Where do I enter a capital gain?