Question about selling stocks.

[Bunny]

I know pratically nothing about selling stocks, so bear with me.

I own, as a result of a class action lawsuit, 30 shares in a MetLife trust. The current value of these shares is approx. $1,000. I called them today to see if I could just cash out the shares - they send me the thousand bucks, and we call it even.

The fellow told me that unless I filled out some form (W-9?), the IRS would automatically take 28%. I assumed that I'd have to pay taxes on the money, so I figured that if the IRS took the 28% off the top, then I wouldn't have to worry about paying the tax next spring. I asked the guy on the phone if this was true.

He said there was no guarantee that I wouldn't still owe taxes on the money, as the 28% was a penalty, not a tax, and he was careful to distinguish that it was not income tax, but a penalty.

I don't understand this. It's not an IRA, or tax deferred annuity, or any sort of retirement fund. So why would I be penalized AND taxed? What's up with this?

[radwriter0555]

1. Hmmm, perhaps since it's not managed in an account by a broker..

someone has to make money on the sale, hence they're calling it a 'penalty', when in fact, it's a service charge for handling the stocks.

So file the w-9, since the sale is considered income; there is no harm in that; it's a pittance and THEY WILL GET IT, no matter what.

And find out for sure precisely how much their so-called penalty is. It's just a handling fee more than likely.

[Nite Owl]

2. I trade for a living and have no idea.

It sounds like a tax bracket. Give a broker a call. Someone like Scottrade, Edwards or Merrill. Even if you don't have an account they will probably be happy to answer a question. Could it be part of the settlement that you hold the shares for a year or so?

[Bunny]

4. Well I've owned the shares for several years.

In December I got my dividend check, a whopping $6.30!! I assumed the 28% was the taxes, since that is a tax bracket.

[Braden]

3. w-9 is a request for Taxpayer ID #

which you would need if you were establishing a partnership or corporation.

Who did you call? Metlife or a brokerage firm?

[Bunny]

5. I called MetLife.

They said that if I filled out this form and sent it in to them, and once it was verified, they could send me the money without deducting the 28% penalty.

[Braden]

6. are you sure it wasnt 1099?

but that is something they would fill out.

from What I know you wouldn't incur a penalty unless you sold the stock last year and didnt pay capital gains tax on it.

Basically there is no penalty for holding a stock and taking no action on it.

28% is a huge penalty. It just doesnt add up. For Example if you sell something from your IRA before retirement age you are assessed a 10% penalty then you are asked to pay tax on the distribution that you receive.

combined it may equal 28% but it shouldnt be on its own.

Did metlife sell you an insurance policy or financial product that lost tons of value?

[Bunny]

7. No, not a 1099. I do know that much.

This class action lawsuit was a result of fraudulent whole life insurance policies that Met Life was selling in the 80's. I used to own one of those policies, but I cashed it out back in the late 80's.

I had no idea I was involved in the lawsuit until I got information a few years ago, telling me that I own 30 shares. Each December they send me around $6.00 for dividend checks. It's called the MetLife Trust, or something like that.

[Braden]

8. yeah, hold on to those shares for a moment

Metlife Northwest Mutual and every other seedy Insurance Co. are getting screwed on past sales tactics. I would search the web for a "metlife underground" type sight and see if there is a message board.

for an example see www.nmlcomplaints.com

I would ask someone there. If its a federal tax liability its your liability not theirs. sounds like they have found a way to recover 28% of their settlement obligations.

I play hockey on tuesday nights so I have to go, but good luck. Dont sell until you find a good answer. Another poster mentioned schwab or fidelity, call them and tell them you will open an account with the proceeds and they will walk you through step by step if you want to go that route.

[Bunny]

9. Okay!

Thanks for your help!

DU does it again, we've got experts in damn near every field!!

[amazona]

11. they can't file a 1099 without the W-9

The reason they can't file the 1099 is they do need this piece of paperwork before they can file it. The W-9 is really short, just asks for your SSN and a statement that you are not subject to federal withholding. That's all it is. Once the business has this form, they can issue you checks in excess of $600. If you're an employee, you filled out something similar that gave your SSN. Even if you're a gambler, and you win a jackpot, you have to provide some proof of who you are and what your tax status is. No one in the U.S. is allowed to hand out hundreds, much less a thousand dollars or more, without documenting where the money is going. I don't doubt the company has done some shady things in the past but this is not one of them.

[amazona]

10. the dude on the phone was just mis-informed

People who answer telephones for a living are rarely qualified to give tax advice. I'm no CPA either but here are my experiences with this.

You do need to provide them with the proper paperwork so they can file a 1099-misc on you and give you the whole $1,000 or whatever. This isn't a scam. However, when he says that the 28 percent is a "penalty" and you wouldn't get back what you overpaid in tax, he's just wrong. You would get it back. Eventually. You wouldn't get it back from MetLife, you would get your overpayment back from the IRS after you did file the proper return.

If you've held the stock several years, it is capital gains and will not be taxed at 28 percent under any circumstances.

I would say, if you are a U.S. citizen, just fill out the Form W-9 already. I've filled out plenty of them and haven't been ripped off yet. It is a pretty short form, you basically just give your SSN and swear that you do not owe federal withholding taxes because of any court actions against you.