SEC Settlement Distribution - Tax Implications?

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uncaD
Posts: 62
Joined: Mon Jun 24, 2013 12:21 pm

SEC Settlement Distribution - Tax Implications?

Post by uncaD » Sun Sep 16, 2018 10:07 am

Hi Bogleheads,

I recently received a check for almost $2k as part of the SEC settlement with BP relating to the Deepwater Horizon oil spill in spill in 2010. From what I can gather, the settlement distribution itself is not taxable, but the cost basis of my BP stock should be reduced by the amount of the distribution. Fine, except I sold the stock in 2015. I also had a capital loss carryforward from 2015 to 2016 in excess of $5k, so there would be an actual tax impact on my 2016 return but not my 2015 return.

Do I need to refile both my 2015 return, showing the modified cost basis of the BP stock sale on Schedule D, and my 2016 return? Or can I get away with just refiling my 2016 return with the reduced capital loss carryforward and explaining where the difference came from? Alternatively, would it be possible simply to include the distribution as a capital gain on my 2018 return?

Also, I was a part-year resident of New York in both 2015 and 2016. TurboTax says that I would have NYS taxes due of $1 on my modified 2016 state tax return. Do I need to bother refiling my state return(s) as well?

I have always done my own taxes in TT and have never used a CPA, so any help would be greatly appreciated.

ralph124cf
Posts: 1985
Joined: Tue Apr 01, 2014 11:41 am

Re: SEC Settlement Distribution - Tax Implications?

Post by ralph124cf » Sun Sep 16, 2018 2:36 pm

I would like to piggyback here.

I also received a settlement, but the twist is that the stock was in an IRA, but the check came addressed to me personally ( I still own the stock).

Is there a way to get this into my IRA without paying income tax on it? I am fully retired and have no earned income.

Thanks,

Ralph

stlutz
Posts: 4660
Joined: Fri Jan 02, 2009 1:08 am

Re: SEC Settlement Distribution - Tax Implications?

Post by stlutz » Sun Sep 16, 2018 3:41 pm

Wouldn't this be like any other legal settlements which are generally taxable as "Miscellaneous Income"?

Gill
Posts: 4575
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: SEC Settlement Distribution - Tax Implications?

Post by Gill » Sun Sep 16, 2018 3:44 pm

ralph124cf wrote:
Sun Sep 16, 2018 2:36 pm
I would like to piggyback here.

I also received a settlement, but the twist is that the stock was in an IRA, but the check came addressed to me personally ( I still own the stock).

Is there a way to get this into my IRA without paying income tax on it? I am fully retired and have no earned income.

Thanks,

Ralph
Not nice to hijack this thread, but I’d contact the IRA custodian and arrange to have the check deposited in the IRA. It shouldn’t be taxable to you.
Gill

Gill
Posts: 4575
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: SEC Settlement Distribution - Tax Implications?

Post by Gill » Sun Sep 16, 2018 3:47 pm

stlutz wrote:
Sun Sep 16, 2018 3:41 pm
Wouldn't this be like any other legal settlements which are generally taxable as "Miscellaneous Income"?
No. Settlements can be taxed in various ways, depending on the nature of the damages.
Gill

Gill
Posts: 4575
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: SEC Settlement Distribution - Tax Implications?

Post by Gill » Sun Sep 16, 2018 3:51 pm

OP, you have a long term capital gain in 2018 of the full amount received. Nothing else needs to be done.
Gill

Chip
Posts: 2183
Joined: Wed Feb 21, 2007 4:57 am

Re: SEC Settlement Distribution - Tax Implications?

Post by Chip » Sun Sep 16, 2018 3:56 pm

^^ I have always reported settlements this way in similar situations.

Gill
Posts: 4575
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: SEC Settlement Distribution - Tax Implications?

Post by Gill » Sun Sep 16, 2018 4:04 pm

Chip wrote:
Sun Sep 16, 2018 3:56 pm
^^ I have always reported settlements this way in similar situations.
Which way?
Gill

uncaD
Posts: 62
Joined: Mon Jun 24, 2013 12:21 pm

Re: SEC Settlement Distribution - Tax Implications?

Post by uncaD » Sun Sep 16, 2018 4:44 pm

Gill wrote:
Sun Sep 16, 2018 3:51 pm
OP, you have a long term capital gain in 2018 of the full amount received. Nothing else needs to be done.
Gill
Ok thanks, I won't worry about it until then.

Chip
Posts: 2183
Joined: Wed Feb 21, 2007 4:57 am

Re: SEC Settlement Distribution - Tax Implications?

Post by Chip » Sun Sep 16, 2018 4:58 pm

Gill wrote:
Sun Sep 16, 2018 4:04 pm
Which way?
Gill
The way you suggested, as a LT capital gain in the year received. The ^^ was supposed to be a pointer to your message, right above mine. :beer

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