Dick Adams <rdadams[at]smart.net> wrote:

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Stu

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heljangal[at]aol.comnojunk (Helen P. OPlanick EA) wrote:

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- quote -

ordinary income. But to give you a really well reasoned opinion I'd
need to look at the complaint, and spend perhaps 20 hours of research
time.

Stu

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Heljangal[at]aol.comnojunk (Helen P. OPlanick EA) wrote:

- quote -

Try:

[97-2 USTC ¶50,592] Dorothy Dye, Plaintiff-Appellant v.
United States of America

Drew Edmundson, CPA (NC)
e-mail is my first name at nccpa dot com

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Helen P. OPlanick EA wrote:

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I agree with Michael--to make the case for capital gain
treatment, you'll have to tell us exactly what was the
nature of the alleged broker error. Merely being an error
won't necessarily get us back to capital gain treatment.

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

Mike and others, I have not seen the lawsuit, but it was
explained to me (and seen by me) that Mr Stockbroker (from a
company with ML as the initials) did not diversify the
taxpayer enough and she sued on that aspect. Then I think
he was selling growth funds to buy growth funds elsewhere.
Basically, her 120K was sold down to 4K and falling. The
suit was on broker error per the attorney.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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Heljangal[at]aol.comnojunk (Helen P. OPlanick EA) wrote:

- quote -

Recission creates neither a capital gain nor ordinary income
except for that portion above original basis. It may create
recapture of capital losses and expenses.

Do not ask me for a cite. That is basic accounting.

Dick

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Helen P. OPlanick EA <heljangal[at]aol.comnojunk> wrote:

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But what ~exactly~ was the nature of the error? If the
broker failed to properly execute a trade that would have
resulted in a capital gain, then a capital gain is what you
have. But, if the errors were otherwise, then it is probably
ordinary.

MTW

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- quote -

Thanks Stu, I've got Arrowsmith and (from memory, stuff is
in car and it's raining) Bressler (spelling is probably
close). The second is 1979 and does say it replaces the
character of the property, so I can go cap gains. A friend
said he may have something newer that says not, and he is
looking.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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- quote -

Thanks all. It was based on broker error.

BTW - I'm not liking Mr. Stogy even more. T/P and spouse
has filed jointly for at least 4 years (since marriage) and
spouse (he) has never paid the taxes (she has very little
income besides the investments), he has SE tax due. Mr.
Stogy said that if his estimate is over the taxes due, T/P
will, OF COURSE, get the refund.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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heljangal[at]aol.comnojunk (Helen P. OPlanick EA) wrote:

- quote -

I did a real quick search. And in spite of my really really
wanting the recovery to be in the nature of capital gain,
apparently the courts don't agree. Take a look at DOBSON v.
COMMISSIONER, 320 U.S. 489 (1943), affirmed in a subsequent
opinion in 320 U.S. 489 (1943).

On the other hand these cases are old and under the old '39
Act, so there may be something more recent on the other
side.

Good luck.

Stu

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Helen P. OPlanick EA <heljangal[at]aol.comnojunk> wrote:

- quote -

I think it would depend on the EXACT nature of the claim
against the broker. If the complaint alleged that SPECIFIC
gains were lost because of errors or omissions by the
broker, then I think you've got a shot. However, if the
complaint was more general in scope, such as "lost income
and profits," then I'd side with Mr. Stogy.

MTW

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heljangal[at]aol.comnojunk (Helen P. OPlanick EA) wrote

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The CPA *may* turn out to be correct, but to state
out-of-hand that the award is ordinary is simply incorrect.

Arrowsmith (344 U.S. 6 (1952), Ct. D. 1752, 1952-2 C.B.
136)is the key SC case in which the court ruled that
although each tax year stands on its own, that fact does not
preclude the look-back to the origniating trransaction in
order to determine how income or loss in a future year is
characterized.

Also RR 79-278 (1979-2 CB 302) specifically ruled in the
case of a corporation that incurred a STCL on the sale of
securities, and that successfully sued the issuer for
violiating federal securities laws, properly treated the
award as STCG. See the link at
http://www.taxlinks.com/rulings/1979/revrul79-278.htm

So it depends on the reason for the lawsuit. If your
potential client sued because the BH improperly released
confidential information, then it is probably ordinary
income. However, if the original transaction leading to the
lawsuit (i.e., it was the grounds for the claim and the
settlement) was capital in nature, you are on your way to
getting capital treatment.

Please keep in mind that Arrowsmith does not always apply.
In Schiller (Schiller, Avery, (1941) 43 BTA 594) an employer
reimbursed an employee for a bad stock tip that the employer
gave that resulted in the employee incurring a capital loss.
The reimbursement was ruled to be ordinary.

Hope this helps,

Peter C. Gatto, non-stodgy CPA

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Helen P. OPlanick EA <heljangal[at]aol.comnojunk> wrote:

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No cite, sorry.

It seems to me the settlement is based on the type of income
it replaces.

If a settlement is to compensate for overcharging for stock
purchases, then the settlement would be used to reduce
basis. So recalculate the cost basis of those stocks and
assume this is a claim of right (over $3000).

The portion of the settlement that's punitive damages, would
be ordinary income in any event.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Taxpayer has won a lawsuit against a large brokerage house
for 120K. Right now, she is carrying a capital loss of 34K.
I want to apply the lawsuit to the capital loss and carry
the remainder as a long term capital gain.

Anyone know a cite off hand that might help me to convince
her to use me -instead of her stogy CPA who says it is an
award and taxable as ordinary income?

Thanks!
Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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