Escheat Stock

[Christian]

As noted in an entry last year a client somehow let a large amount of property become escheat to the state of Virginia who sold it. They subsequently recovered the cash received which prompted my forum entry. I advised a family member to have the money reinvested in the security which was sold by the state and no tax consequences would result until such time as the stock was sold. True to form they did nothing. The state sent them a form but it is anything but definitive as to how the money is to be treated for tax purposes. They did advise how many shares were sold and the date. My thought was to treat the sale as if the owner sold the stock. I called the priority line but no help there. It would likely pass muster but should any of you have encountered a similar situation I would appreciate any info you may be able to share.

[jklcpa]

You are correct that the taxpayer has only a certain amount of time to reinvest under IRC § 1033(a)(2)(B)

Here is an article from BNA that describes what is happening, and see specifically under the heading "State Liquidation of Securities."  If not reinvested within the time prescribed under 1033(a)(2)(B), then it should be reported as a sale of the security and recognize the capital gain or loss.  I would use the date the funds were made available to the taxpayer as the date of sale.

[Christian]

Thanks ever so much. As it happens they did not receive the funds until 2018. I will print this and place it in their file. 

[TAXMAN]

Do you know how long VA will actually hold the stock before converting to cash? I found one I had completely forgot about because of circumstances surrounding my divorce. Only 8 shares.

[Christian]

Taxman I am not that familiar with escheat law but maybe three years. This particular client is a dilly dallyer but advised she did not have great difficulty in getting the matter resolved.