Supplemental cost basis sheet and Code V

[DTS]

A colleague asked me to post this, so he could better understand this difference shown in this email to me:

Client's 1099 B shows NQSOP sale proceeds $101494. Cost $60242. Gain $41252. Then her 1099B's "SUPPLEMENTAL" info sheet shows Cost basis $101577. Her W2 box 12d shows code V $46159 Why is there a significant difference between W2 code V and supplemental cost basis sheet?

Thank you in advance.

[Burke]

Code V only shows the amount which is included in wages as income to be taxed. That is only part of the basis when calculating what goes on the Sche D. The supplemental 1099B probably has the correct figure for basis, as there is often a small loss if exercised and sold in a short period of time or in what they call a simultaneous exchange. Most employees do this, and do not hold for long-term capital gains purposes. Of course, if they don't sell for more than a year, the taxable amount of gain/loss may be quite different. So if you are doing this down the road, that amount on the W-2 has to be kept on record to determine the basis at time of sale. Don't depend solely on what the 1099B says from the broker who handled the sale. These employees receive extensive paperwork from the company when these shares are granted, exercised, and sold. Make the client get those to you for review.

[Roland Slugg]

Why is there a significant difference between W2 code V and supplemental cost basis sheet?

The Code V amount on the W-2 is the spread between the FMV and the exercise price of options granted that year. The basis reported on form 1099-B should be the basis of stock (acquired via the exercise of NQSOs) that was sold during the year. Based on the numbers you reported I'd speculate that the employee exercise options and acquired share in two or more different lots and that he still owns some of the shares. The supplemental information furnished by brokers with their annual form 1099-B packages usually reports the cost of all stock acquired during the year.

Regarding the taxpayer's 2014 reporting requirements, Burke is probably correct ... that the basis, sale proceeds and gain amounts reported on form 1099-B should be used. His tax preparer should definitely discuss this with his client, however, to be sure.

[DTS]

Burke and Roland,

Thank you. I'll shoot him an email, but he's probably seen your responses by now and I hope it helps him. I told him I'd go with the supplemental sheet.

D