Got a class action settlement check

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Chogy
Posts: 9
Joined: Sat Jan 18, 2025 3:36 pm

Got a class action settlement check

Post by Chogy »

Years ago, an entity named Valeant Pharma was charged with a bit of fraud...

https://www.sec.gov/newsroom/press-releases/2020-169

I bought about $35K worth in Feb 2016, long before understanding Bogle philosophy, and within a week, it was valued at $24K. I dumped it like a hot potato. It eventually went to zero, IIRC, and the company changed it's name to Bausch Health. Fast forward, I received a mailing from a law firm around 2020? and joined a class action lawsuit thinking "what do I have to lose?" The stock was in a 401-K Brokeragelink account which was subsequently rolled into an IRA at Fidelity when I retired.

Today, I got a check for about $890. The tax implications on this baffle me. Technically, it was 401-K money. Can I consider this a 60 day indirect rollover and drop it into my current IRA? Is it taxable as ordinary income? My first thought was to just cash it and buy some beer and pizza, but the thought of getting a 1099-MISC or worse a 1099-R in January 2026 has me a bit twitchy.

Thought? Thanks!
HomeStretch
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Joined: Thu Dec 27, 2018 2:06 pm

Re: Got a class action settlement check

Post by HomeStretch »

Welcome to the forum.

The settlement agreement on the law firm’s website should include a section on tax.

When I received a 401k class action settlement check, it was qualified for a rollover into an IRA.

You will likely receive a 2025 tax form in Jan. 2026. It should be straightforward for tax return purposes.
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snackdog
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Re: Got a class action settlement check

Post by snackdog »

Safest and easiest route is to declare the entire check on state and federal returns as Other Income.
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JazzTime
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Re: Got a class action settlement check

Post by JazzTime »

I believe the letter that was included with the check says "we cannot determine the appropriate tax reporting for the recipients." So it will be interesting to see if they issue any sort of 1099 next January. I tend to doubt it. I've never received anything before on these types of settlements, but then again no other settlement was this large.

My plan is to wait and see if a 1099 is actually issued, then decide how I wish to report it. In my case, the stock was in a taxable account so I think an argument can be made that this is not ordinary income, but an offset to the original capital loss and therefore treated as a capital gain. It's sort of like receiving a partial refund on a purchase. I have no idea if that's correct tax law, but it is an argument if one wants to be aggressive.

In your case, I suppose you could try to do an indirect rollover, but that strikes me as a bit complicated given the amount of time that has passed. Just depends how much paperwork you want to do for a relatively small amount and whether this complicates your tax filing.
The difficulty with jazz is there are too many notes. (Borrowed from Emperor's critique in Amadeus)
HomeStretch
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Re: Got a class action settlement check

Post by HomeStretch »

There is a Valeant class action website. The case documents are in a website tab. One document is the “settlement agreement” (see link, below). The “taxes” section on p.27 says this settlement is treated as a “qualified settlement fund” under applicable U.S. Treasury rules. This generally means the settlement amount is eligible for rollover into an IRA.
https://www.valeantsecuritiessettlement ... lement.pdf

The website has a “contact us” page:
https://www.valeantsecuritiessettlement ... ct-us.aspx
If you are eligible for and decide to do an indirect rollover of the gross settlement $ into an IRA within 60-days of receipt of the funds, you can call to ask for the settlement $ breakdown (i.e., gross settlement, taxes withheld and net amount paid to you). I called when I received similar qualified settlements. The call was promptly picked up and they emailed me the settlement breakdown.

When you enter the 2025 1099 in tax prep software, it will ask you what you did with the proceeds. If you rolled it over into an IRA, you will not owe taxes on the gross settlement amount. If you deposit the check into a Taxable account, it will be taxed.
justtryharder
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Joined: Sun Apr 24, 2022 2:21 pm

Re: Got a class action settlement check

Post by justtryharder »

I had a class action settlement check from an IRA (think it was Wells Fargo) and drove to the local Fidelity office. They deposited it back to the IRA but had to use a special code so it wouldn’t be characterized as a contribution. It took them a minute to figure it out — had to call someone I think — but eventually they did.
Barky
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Re: Got a class action settlement check

Post by Barky »

JazzTime wrote: Sun Feb 02, 2025 7:49 amMy plan is to wait and see if a 1099 is actually issued, then decide how I wish to report it.
This is the way to go.
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