You know those puny checks you get from class action settlements that don't tell you whether to declare it as taxable income or not? Then they tell you to consult your tax advisor, as if you want to incur professional fees, too, to account for a small check.
The easy answer depends on whether or not you still own the stock. Here is what you should do in most cases:
If you still own the stock, record the class action claim check amount as a return of capital and reduce your basis in the stock. If by some miracle the class action claim check amount exceeds your remaining basis in the stock, record the excess as a capital gain distribution.
Click on the image below to access our free claim check calculator
Claim Check Calculator
If you already sold the stock (probably at a loss, since there was a class action filed against the company), record the class action claim check as a long term capital gain distribution and report it as a capital gain in the year that you received it.
Another complicated case is the AIM/Invesco Fair Fund claim settlement checks paid in 2009 which included both a "loss" component and an "advisory fee" component which may be ordinary income. The calculations for these settlements are beyond the scope of this website, but more information can be found at: http://www.aimfairfund.com/irsinfo.asp
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Information provided is intended solely for U.S. individual cash-basis taxpayers and is believed to be accurate for most cases. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please e-mail webmaster @ costbasis.com or write to us at P O Box 11022, Chicago IL 60611 with your comments.
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