Court allocates basis to stock acquired from demutualization transactions upon sale of stock

Insurance Tax Bulletin

In July 2012, the US District Court for the District of Arizona concluded that a life insurance policyholder had basis in the shares of stock received in connection with the demutualization of five life insurance companies, but that a trial was required to determine the amount of that basis. A trial was held in December, and recently the court allocated basis consistently with the demutualizing company’s allocation of shares to the policyholder in connection with the demutualization. Bennett Dorrance et ux. v. United States, No. CV-09-1284-PHX-GMS (March 19, 2013). This case is important for taxpayers who intend to sell stock received in a demutualization transaction, and demonstrates that courts continue to grapple with whether to apply the open transaction doctrine and how a taxpayer’s basis, if any, should be allocated.

Return to Tax research and insights
Insurance Tax Bulletin newsletter archive