"Nondividends Distributions"

[Black Bart]

Box 3 of client's 2007 1099-DIV lists $700 of this. Accompanying data reveals it's stock given to him (no cost) as result of company merger or something. Entered in ATX and it does...nothing. No effect -- tax is unchanged and the $700 shows up nowhere except in data entry screen.

The stock was sold in 2007 and I thought receiving it at no cost would be income for '07 and then used as basis against the sale. Instead, as the program's handling it, it seems no income is recognized on the receipt and then cost basis of the sale is zero (100% gain). Is that right? Or are those 1099 "Nondividend Distributions" supposed to be taxable?

Don't know why I'm always suspicious of the tax programs since they're usually right (and smarter'n me)..

[dtlee]

Normally Box 3 is used to report return of capital on stock which would then reduce the basis of the value of the stock owned (but not below zero). This would not be taxable unless the basis of the stock is already reduced to zero. In other words, if he had no basis in the stock, the amount of the distribution in Box 3 would be fully taxable, but if his basis was greater than the amount in Box 3, the Box 3 amount would reduce the basis.

Hard to tell, but that distribution could have been taxable in the year received and the basis could be equal to zero. You probably need more information about how the stock was received to be sure of how this needs to be handled.

[Burke]

I think the software is okay. It's the 1099 that may be wrong. But in any event, since he sold it in the same year he received it, it is a short-term gain at 100%. I would just report it like that (zero basis) and let it go. Not worth the trouble to change anything.

[Black Bart]

Thanx for the info, folks!

...just report it like that (zero basis)...let it go. Not worth the trouble to change anything.

With apologies to you dt, I'm goin' over to Burke's side since his method nicely coincides with my own (take the easiest way out).


_________________________________
Our life is frittered away by detail.
Simplify, simplify! -- H. D. Thoreau

[Davc]

If the stock was received in a partly or non taxable transaction then there is a carryover basis and holding period. If it occurred last year then Google "[company name] investor information" and you have a good shot at locating details.

[FEDUKE404]

Where is the Form 1099-B ?

So far as I know, most software will not create any "income" directly as a result of an entry in box 3 of Form 1099-DIV.

Such amount(s) shown over the ownership period of the stock do result in a reduction of cost basis, i.e. a larger "gain" upon disposition in the "there is no free lunch" genre. If the cost basis is already at zero, then the number shown as non-dividend distributions shows up on Sch D for the relevant year(s). The owner of the stock, or his well-informed accountant, is responsible for keeping track of the basis numbers.

It is my understanding that ANY stock sale in recent years is reported to the IRS on Form 1099-B, hence my initial question here.

You cannot overlook the fact there is a possibility some increase in income for the "gift" was present on the W2. In any case, it should be a relatively simple matter to report the stock sale on Sch D once all of the facts are known.

FE