Today TaxMama hears from Tim in Seattle, with an interesting question. “Suppose a person owns stock in Company A that subsequently goes private. They are forced to sell their stock in Company A.
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Is there a way to defer taxes on the involuntary conversion of company A’s stock by reinvesting the proceeds in other stocks within a certain period of time?”
Hi Tim,
That’s a good question. But I don’t know of a way.
You might want to research involuntary conversion rules to see if there is anything that might allow you to do this. If the stock sales qualifies as an involuntary conversion, you should have two years to replace it.
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But,…will a stock sale qualify?
In particular, look at the definition of a condemnation:
https://www.irs.gov/publications/p544/ch01.html#en_US_publink100072305
A condemnation is the process by which private property is legally taken for public use without the owner’s consent. The property may be taken by the federal government, a state government, a political subdivision, “or a private organization that has the power to legally take it”. The owner receives a condemnation award (money or property) in exchange for the property taken. A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer.
Note the part where I’ve added quotation marks. While this pub seems to be talking about real estate….does this also apply to stock? Let me know what you find. While a private organization (Company A) would qualify as the taker…there is the consideration about taking the property for public use.
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So, the stock sale probably won’t qualify.
In fact, this would make a good TaxQuip for today. Tune in to see if the experts come up with a good response or advice.
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https://taxquips.com/index.php?id=1193
And remember, you can find answers to all kinds of questions about stock sales and other tax issues, free. Where? Where else? At TaxMama.com
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- IRS Publication 544 :: Discussion about condemnations and involuntary conversions
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