IRS Asked To Review Cost Basis Ruling On Demutualization Payouts An accountant who challenges the IRS says it will close its probe of him
By Arthur D. Postal
The Office of the Taxpayer Advocate within the IRS has asked the agencys Chief Counsels Office to take another look at a controversial ruling which holds that payments, whether cash or stock, made by mutual insurance companies to policyholders when they convert to stock status are fully taxable when the cash is received or the stock is sold.
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At the same time, an accountant who argues that the current IRS position is wrong and has placed articles on a website containing information on the issue says he has received information from the IRS that the agency has decided to close without action an investigation of him underway for the past year contending that he was marketing an illegal tax shelter. That information would not be confirmed by the agency, citing privacy laws.
However, a change in the current IRS position could be a boon to corporate interests which hold life insurance underwritten by mutual insurance companies which converted to stock status.
Regarding the cost basis issue, Kenneth Drexler, a senior advisor in the Office of the Taxpayer Advocate in Washington, confirmed last week that the taxpayer advocacy arm of the IRS had asked the agencys Office of Chief Counsel to review its long-held view that recipients of these cash or stock grants upon demutualization had no cost basis to deduct when they sold them.
Drexler said the Taxpayer Advocates Office is continuing to look at this, and asked the Office of Chief Counsel to also re-examine its position. Within the IRS, the Office of Chief Counsels role is to interpret the law, Drexler said. Our role is taxpayer advocacy within the bounds of the law.