NUA question

[nwtaxlady]

Client cashed out his company plan. So he got a 1099-R from Fidelity Investments. With these amounts:

Box 1 Gross Distribution $ 111,888
Box 2 Taxable amount $ 78,366
Box 5 Employee contribution $588
Box 6 Net Unrealized Appreciation in Employer's securities $ 32,934

Box 7 code 1 (he's 35 yrs old)

Then he sold his stock and has a 1099-B from Computershare Proceeds of $99,713

Note: there is nothing in Box 3 of the 1099-R.

So How is this reported? What is his cost basis for the stock sold?

He worked at Philip Morris USA Inc. In case any of you have dealt with this before.

Thanks!

[taxea]

Client cashed out his company plan. So he got a 1099-R from Fidelity Investments. With these amounts:

Box 1 Gross Distribution $ 111,888
Box 2 Taxable amount $ 78,366
Box 5 Employee contribution $588
Box 6 Net Unrealized Appreciation in Employer's securities $ 32,934

Box 7 code 1 (he's 35 yrs old)

Then he sold his stock and has a 1099-B from Computershare Proceeds of $99,713

Note: there is nothing in Box 3 of the 1099-R.

So How is this reported? What is his cost basis for the stock sold?

He worked at Philip Morris USA Inc. In case any of you have dealt with this before.

Thanks!

The stock sales should be on the final investment statement he received for the tax year. Did he give this to you? You need the detail of # of stock sold, date purchased, date sold etc.
Did he give a reason for the distribution from the employer plan? You need the documents that requested the distribution and those that give detail on the employer account to properly determine the taxable amount.

[Corduroy Frog]

All elements exist

I believe everything required to properly report is on the documents.

Employee has only $588 of his own money in Philip Morris. Company "match" (if you wanna call it that) is another
$78,366 measured by the value of the stock at the time the company placed the stock in his account.

While it was in his account, the stock rose another $32,934. Total of all three factors equal $111,888 - the market
value of the stock when it was discharged.

$78,366 is taxable as retirement income. When stock is ultimately sold there is another $32,934 is capital gains,
with sales value of $111,888 and basis of $78,954. Basis results from $588 of his own money plus another $78,366
that he has already paid tax on.

[nwtaxlady]

I agree Courdoroy Frog....

Yes, that is how I see it too. He is paying tax on the $78,366 which then becomes his basis to add to the $588.

He cashed out because he left his job and moved out of State. He is only 35 yrs old. And it is coded 1. So he will also have the 10% penalty.

So since there is not a number in Box 3. Capital gain then the form 4972 is not necessary????? Is that correct?

Thanks again!!

[Corduroy Frog]

Too young for 4972

I believe in order to use form 4972, a retiree would need to be born before 1936...

[FEDUKE404]

Cannot use 10-year averaging

I believe in order to use form 4972, a retiree would need to be born before 1936...

Agree. Back in the "old days" a Form 4972 was a much-appreciated way to save client some (considerable) federal taxes. (So was Schedule G. )

It's been a long time since I prepared one, and I doubt if that will ever recur. Anticipated future exposure to Form 4972 is right up there with that of Schedule R.

FWIW: It is plainly shown at the top of Form 4972 "From Qualified Plans of Participants Born Before January 2, 1936."

FE

[WTorres]

NUA - box checked or not

I have had 1099R before but not with Box 6 figures, so I need to make sure.

Box 1 - $9332
Box 2a - $113
Box 2b - checked
Box 3 - blank
Box 5 - blank
Box 6 - $9219

NO Fed or State taxes were withheld. The company gave the employees the option.

My client is 45 years old. He left the company last year and received his stock payout. Since he is no longer employed and received this lump sum payment, I need to make sure that Box 6 needs the check mark in it.
I have read Pub 575 and the example in the book does even have the check mark on page 26. I want to say it should be checked and all taxed. But I need to make sure.

Thanks for your time.
Wendy

[FEDUKE404]

Go by what's on the Form 1099-R

I have had 1099R before but not with Box 6 figures, so I need to make sure.

Box 1 - $9332
Box 2a - $113
Box 2b - checked
Box 3 - blank
Box 5 - blank
Box 6 - $9219

NO Fed or State taxes were withheld. The company gave the employees the option.

My client is 45 years old. He left the company last year and received his stock payout. Since he is no longer employed and received this lump sum payment, I need to make sure that Box 6 needs the check mark in it.
I have read Pub 575 and the example in the book does even have the check mark on page 26. I want to say it should be checked and all taxed. But I need to make sure.

Thanks for your time.
Wendy

This is not a decision which you make. Perhaps the box should have been checked, or perhaps the block should not have been checked by the company that issued the Form 1099-R

Without knowing more facts (about the company, over what time period the shares were obtained, market value of the shares over time) there's really no "tax" answer.

You enter the exact information as shown on the Form 1099-R and run with it.

At some point, such as when/if the client disposes of the company stock he received, then the number on the Form 1099-R might have some relevance such as to cost basis.

Otherwise. . .remember "assume" is not a good choice in the tax preparation busines.

FE

[WTorres]

Thanks for the advise

This is not a decision which you make. Perhaps the box should have been checked, or perhaps the block should not have been checked by the company that issued the Form 1099-R

Without knowing more facts (about the company, over what time period the shares were obtained, market value of the shares over time) there's really no "tax" answer. - He worked there for about 5 years

You enter the exact information as shown on the Form 1099-R and run with it.

At some point, such as when/if the client disposes of the company stock he received, then the number on the Form 1099-R might have some relevance such as to cost basis.

Otherwise. . .remember "assume" is not a good choice in the tax preparation busines.

FE

The reason that I was questioning this is because my program gave me a WARNING about NUA.