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Old 02-04-2015, 11:21 AM
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ESOP Distribution Settlement and 1099

My husband was laid off 2007 after 13 years with a home builder. He had over 100K in the company ESOP retirement plan. Contributions were 100% by the employer. The plan summary stated distributions could only take place 5 years after termination. Our request for distributions were ignored and we had to hire an attorney and file a lawsuit. At this point the stock was worth 26K and we wanted a distribution before the company went under or the stock dropped further. We accepted a discounted cash distribution in the amount of 16K if we dropped the lawsuit. We received a 1099 last week for an amount in excess of 35K. We hope this is an error but are wondering if the former employer is reporting the value of the stock at time of distribution and not the actual cash value we received. In speaking with our attorney this morning, he states that he suspects the higher 1099 amount was issued because the settlement involved the distribution of stock from the ESOP then repurchase by the company and the tax implications of this may be unusual. My question is what amount are we liable to pay taxes on? Are we able to deduct our legal fees? Is this considered a capital gain or loss? I am going to contact a CPA however I wanted to obtain some message board opinions. Any advice would be appreciated.

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