Demutualization - 9/22/08

INTRO: If you have owned life insurance, the IRA may owe you some money.  Maybe thousands of dollars. 

1. WHY WOULD THE IRS OWE US MONEY IF WE OWNED LIFE INSURANCE?

A. Life insurance owners won a big victory against the IRS this summer.  As a result, the IRS may owe millions of dollars in refunds to millions of life insurance owners.  Here's why:

Since 1994, 34 major insurance companies demutualized.  That means they had been owned by policy holders, but then changed to a stock company owned by shareholders.  When they demutualized, they gave shares of stock to policy holders.  Millions of people, including many of your viewers, received stock in their life insurance company.

2. YES, MANY OF MY CLIENTS RECEIVED THESE SHARES.  THEY WERE THRILLED, BECAUSE THE STOCK WAS WORTH MONEY, AND THEY GOT IT SEEMINGLY FOR FREE.  WHERE'S THE IRS COME IN?

A.When people sold their A free@ shares, they were taxed by the IRS at the full value.    So if you sold your shares for $10,000, you'd pay tax on $10,000.

The recent court case ruled that the IRS overcharged taxpayers.  In fact, if you sold your shares immediately after getting them, you should owe no tax.  And if you want to sell your shares, you should only pay tax on the increased value from the time you received your shares.  Under this ruling, taxpayers may have overpaid taxes by billions of dollars.

3. IS THIS COURT CASE THE FINAL WORD?

A. The IRS is appealing this decision to the U.S. Supreme Court, so we won't know the final verdict for a year or so.

4. WHAT SHOULD OUR VIEWERS DO NOW?

A. There are three categories of people.

First, if you still owe stock in an insurance company that you received in the demutualization, or you sold earlier this year, you'll want to take advantage of the court case and claim what's called a tax basis.  Talk to your accountant or tax preparer about how to file.

Second, for people who sold in 2005, 2006, or 2007, you should immediately file a Aprotective refund claim.@  You do this on an IRS Form 1040X amended return.  This preserves your claim for a tax refund until the lawsuit is finally decided.  Contact your tax preparer, or go to www.demutalization.biz for more information.

Third, if you sold your stock before 2005, you're probably out of luck.  In most cases, you only have three years to ask for a refund for overpayment of tax.  So unless you filed a Aprotective refund claim@, you probably can't get your money back.

CLOSE: If you own or owned life insurance, we can Ainsure@ you can get some money back from the IRS.