It's late (and my son just called to say he's engaged to his longtime girlfriend, so I'm distracted too!) but I think if you still own the stock, you decrease your basis by the amount received, you got a refund of part of your purchase price. If you already sold the stock, I think it's capital gain on Schedule D, with LT or ST maybe based on original holding period; it's additional sales price with no basis, because you used that when you sold the shares. I need to learn this too. Just received an email from a client who dropped off his stuff some time ago: Oh yeah, and I got a check of around $900 from an Enron settlement. Do I have to do anything with it? Now, he remembers it! I don't remember him owning Enron or selling it when it was worth anything and don't remember us taking a loss on it as a worthless stock. However, I used to work for Block, so that might've happened on an old return when he was a Block client. Thanks for all the posts.