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Posted by Ted on October 31, 2006, 1:28 am
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>> I just won a lawsuit against the directors of a small
>> company in which I own stock; they have to pay me my share
>> of funds they misappropriated from the company.
>>
>> Since I am just receiving reimbursement for damages, I don't
>> think it is a taxable event. However, if they hadn't
>> misappropriated the funds my investment would be worth more,
>> which would ultimately be taxed as capital gains; so perhaps
>> it is taxable. I am confused. Taxable to me or not?
>>
>> The company originally deducted the improper payments to the
>> directors. Does the company have to refile to backout the
>> deductions (since they are illegal, they obviously weren't
>> deductable); or is a lawsuit verdict not relevant?
> I can't tell if you are more interested in what you have to
> do or what they have to do?
Both. Since I am still a significant stockholder, what they
have to do is important.
> I still do not quite understand what your losses were that
> you had to sue to recover.
They misappropriated money. My lawyer says I have to chose
between them paying my loss to me directly, or having them
pay the entire loss back to the company; since the Judge
found for me on both, but I can only get one. I am trying to
figure out which is better. Perhaps they are ultimately the
same.
> But the general rule is unless the settlement is to
> compensate you for your personal physical injury or disease
> and you name is not Murphy, then the settlement is taxable.o
>
> However, if your automobile was damaged and you sue to
> recover actual provable losses, that would not be taxable
> either.
>
> If you bought stock in this compoany and later sold it for
> less than you could have due to actions for which you were
> awarded damages, you would report the income on Schedule D,
> short term or long term, depending on the original sale.
> If you still held the stock, this award would decrease your
> basis but not below zero. Income in excess of basis is short
> or long term gain.
So, if the award was $100k, my basis $250k, and I later sold
the stock a few years later for $500,000, I would have a
capital gain of $350k. Is that right?
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