Client had an account with a local credit union. The CU was bought out by a bank. She received a 1099 with $50 in box 8 as a distribution in liquidation. Is this like“C” corp liquidation where it’s taxable only if it comes from P&E or is it more like a demutualization payment where it’s a capital gain with 0 basis? I know it’s not much tax but have the feeling I’ll be seeing more and larger ones.
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In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de Tocqueville -
Return of capital?
In order to open the account at the CU she was probably required to invest $50 in its stock. If so, the $50 on that 1099-DIV is just a return of capital. If that's not was it is, then I don't have a clue.Roland Slugg
"I do what I can." -
Every credit union I have ever been involved with is a mutual company. Am not sure, but think that all credit unions are by definition mutual companies, as opposed to banks which are stock companies. So, the liquidating distribution is probably due to a sale to a stock entity (like the cited bank), and the credit union disappears, ie it is not a merger, but is a sale. The mutual "equity" of the depositor should be treated the same way as a demutualization payment for a mutual insurance company, as you have already suggested.Comment
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