Not officially in audit, rather with claiming basis on the tax return. For the IRS to take this position is completely unreasonable and they know it. When Prudential went from a mutual company to publicly traded, they actually provided estimated cost basis for those policy owners who wanted to take the position.
I would have something in my files to substantiate the cost basis calculation provided. The IRS knows this is a small amount for each tax payer and the odds are that the taxpayer is not going to fight it. So they attack where their is no defense and win every time.
Just one of the many areas the IRS goes after, knowing they will not have much resistance by any single taxpayer.
Ha! It's over my head also.I'm helping my dad with his living trust and this came up. He has some Prudential shares from a long time ago. I made my living in concrete as a contractor then plant owner. Now I operate a charter boat and have a small ranch. I hope I'm done with concrete.