| Class Action Claim Checks |
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:
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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.
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| Claim Check Calculator |
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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 the check.
Some class action claim check cases are a little more complicated. For instance,
a portion of the recent Janus Fair Fund checks may be required to be reported as
ordinary income. Detailed instructions are available at this link:
Janus Statement to Eligible Investors.
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 this link:
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