The official IRS position is that the policyholder’s cost basis in the shares of stock it has received as a result of demutualization is “0”. If the policyholder sells the shares the gross proceeds are fully taxed as a capital gain.
The holding period for determining long-term capital gain treatment is the period of time that the taxpayer has held the underlying policy and not the period of time that the taxpayer has held the actual shares. If a company demutualized in January of 2005 and the policyholder sold the shares in October of 2005, but had purchased the qualifying insurance policy in March of 1990, then the holding period is March 1990 to October 2005. In most cases the sale of shares received in demutualization result in a long-term capital gain.
You may be entitled to money from a demutualization that occurred in past years. If the insurance company cannot locate a policyholder to send them their shares it is required to turn the shares over to the State under local unclaimed property laws. This happened with my uncle, who had passed away. My father, as beneficiary, ended up with over $4,500 in "found money" (check out my posts “How I Made Over $4,500 By Watching Good Morning America” Part One and Part Two)!
You can go to the Unclaimed Property website of your individual state or you can check out these web sites (one, two, and three), which you can use to inquire about the status of a policy or your ownership rights, or any other questions you may have about demutualization.