"Geezer" <gqunospamale[at]att.net> wrote:

- quote -

It sounds like you still own the stock. You treat the
payment as a "return of capital" that reduces the basis of
your stock. On Form 1040, Schedule D, you report the payment
as the "sales price", and the "basis" as the same amount.
You reduce your basis in the stock by the same amount.

- quote -

No. Your loss (or gain) is reflected when you sell the
stock.

Lewis

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In 2003 I received a payment for my share of the settlement
from the Cendant Corp. class action litigation. The amount
of the settlement is described as a pro-rata payment for my
damages in purchasing the stock at artificially inflated
prices. In other words, had the Cendant management
properly reported company financial information, the market
would have valued Cendant stock at a lower price at the time
of my purchase (i.e. I should have had a lower basis in the
stock), and this settlement is a partial correction for the
inflated purchase price.

My question is then can I treat this payment as a decrease
in my basis in the Cendant stock, sort of like the way a
return of capital is treated. Thus there would be no income
tax paid on this settlement until I sell the Cendant stock,
and it then would be taxed at capital gains rates and not my
marginal income rate. No 1099 was provided by the law firm
paying out the settlement, and they decline to provide
guidance on the tax treatment of the settlement payment.
I've searched the IRS site for guidance to no avail. Any
ideas?

Further, can the amount of the my calculated damages
approved by the court ($3000) but not reimbursed by the
pro-rata settlement payment ($1000) be deducted on Schedule
A line 19?

Thanks in advance, Gary

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