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Imagine an investor owns the XYZ company which is taken over by another company in a cash transaction. The investor sells his shares in the XYZ company for a profit. He then reports the profit as a long term capital gain on his tax return and pays taxes on the gain.

After some time, a class action lawsuit occurs claiming that the investor was not given adequate compensation for his stock. The lawsuit is settled and the investor receives another check. It is my belief that this second check is taxable as a long term capital gain. Am I right about that?

I am in the United States

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The lawsuit is settled and the investor receives another check. It is my belief that this second check is taxable as a long term capital gain. Am I right about that?

Yes.

Note that the attorney fees may or may not be deductible, check with your tax advisor.

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