S-Corp K-1

[peggysioux]

Employer gave employee a certificate for shares in the company without par value common stock in 2020. Employee is stating received no other documentation other than the certificate. Employee received a K-1 for 2021 with a small amount of income in box 1 and distributions greater than box 1 income. There is no basis information included in K1 and taxpayer stated employer gave shares as a “gift”, no cost to her. Would her basis be zero or the value of the shares in the hands of the gifter when gifted?

Peggy Sioux

[peggysioux]

Employer gave employee a certificate for shares in the company without par value common stock in 2020. Employee is stating received no other documentation other than the certificate. Employee received a K-1 for 2021 with a small amount of income in box 1 and distributions greater than box 1 income. There is no basis information included in K1 and taxpayer stated employer gave shares as a “gift”, no cost to her. Would her basis be zero or the value of the shares in the hands of the gifter when gifted?

Peggy Sioux

I didn’t think about the employer/employee relationship issue until after my first post. Taxpayer did say that employer “gifted” her the shares. Then I remembered:

“IRS considers anything an employer gives an employee to be a form of taxable compensation (with a few exceptions). Internal Revenue Code (I.R.C.) ? 102(c) explicitly states that gifts to an employee are not excluded from the employee's gross income.”

So how do I, as the tax preparer, handle the issue if employer did not include the value of the shares in employee’s taxable compensation?

Peggy Sioux