You Can't Escheat Taxes

April 12, 2010 2:03 PM

Recovered escheated stock in Massachusetts - how is it taxed?

The state of MA was kind enough to seize stock for which I had physical shares and hold them in escheat, then they sold them in 2005.

I have filed a successful claim and will be having the cash value plus interest paid to me. I asked the representative from the department of abandoned property if I was now responsible to the capital gains on these shares. I was told no - I was only responsible for the interest income and would be receiving from the cash value.

I would like to believe the department representative. I truly would, but I cannot possibly imagine a world where any federal or state government would willingly pass up long term capital gains income. It strikes me that it would be a huge loophole to arrange for any long-term investment to go into escheat so as to avoid capital gains tax.

So what's the deal? Yes, you are not my financial adviser or my tax attorney - I've already strung up a warning flag to them. The curiosity - it burns!

posted by plinth to Law & Government (1 answer total)

Best answer: I have heard from my tax accountant. She says that since the stock was not my property when it was sold by the state then I am not responsible for the capital gains on it, only the interest earned while the proceeds were held.

I understand the logic, but I truly find it hard to believe.
posted by plinth at 11:29 AM on April 13, 2010