need help please.

[fliszt]

I'm working on an audit of unreported income which is the following 1099B.
TP received 1099B. Shows
411.7164 shares sold $22.60/shr total $9305
245.0839 shares sold $42.00/shr total $10,294

I’m not sure how to handle cost basis because the 1099B was issued due to the following:

TP was with company G while ESPP was in effect. Company B purchased company G and took over the shares in this manner: 245.0839 shares of company G were taken by company B and replaced with 411.7164 shares of company B, PLUS company B gave TP $10,294 cash. Now of the 411.7164 shares, company B sold .7164 shares for $16 and that is reported on another 1099B. Now TP has 411 shares of company B stock valued at $9305 in her account. TP paid $13,412 for the original 245.0839 shares. So do I show the 411 shares having a cost of $9305 on the sched D? And show the cost of 245.0829 shares at $0 so she pays tax on the $10,294 but none on the $9305?
Your help is really appreciated.

[Uncle Sam]

Stock Takeover Basis

I would report a loss - $ 9,305 SP - $ 13,412 cost

The 10,492 is all capital gain since it was paid in cash. The cash is all income, since the shares were exchanged.

[totb2007]

Isn't there an ordinary income portion? ESPP shares are shares purchased at a discount. The $9,305 plus $10,294 exceeds cost of $13,412 so some portion should be ordinary income.

Could try searching the company investor relations web page for reporting instructions. Maybe these same instructions can be found in the EDGAR database?

[S T]

Some Links

Larry,

I don't know if this will assist you, (qualified disposition vs disqualifying) but here are a couple of links

http://www.fairmark.com/execcomp/espp/disqual.htm

http://taxes.about.com/b/2007/01/26/selling-shares-from-employee-stock-purchase-plans-a-taxing-calculation.htm

https://content.etrade.com/etrade/optionslink/espptax.pdf

http://www.jlfwealth.com/tips/income_tax_planning/employee_stock.html

Good Luck,

Sandy

[Snaggletooth]

No Ordinary Income

Larry, if there was a discount that was amortizable, this would have been ordinary income had it been amortized on a year-to-year basis. My guess is that you are dealing with a situation where this probably happened, but either wasn't reported to the shareholder, or if so, he didn't tell you because he didn't understand it.

I would report the whole sh-bang as capital gain/loss.

Sh-bang - Southern colloquialism - something that happens at a shotgun wedding while daughter is trying to tell enraged father to keep quiet

[fliszt]

Thank you

for your posts. I don't think the TP received a discount, but am going to check to make sure. Otherwise, I think I'll do as Uncle Sam suggested. The TP asked me last night if this all holds true for 2007. I just rolled my eyes and said yes -- did you have 1099Bs for 2007 also? Yes. Well, lets finish the 2006 audit and then we'll jump into 2007 return before the IRS finds it.
Thanks again all. I REALLY appreciated your posts!!

[fliszt]

Once again,

I stand corrected. The TP DID receive a 15% discount. Under normal circumstances part of the 1099B would be ordinary income. But in this case, shares of the old company were TRADED for shares of the new company. Yes, the TP did receive a $10k compensation but the shares of the new company are equal to the value of the shares of the old company. So I plan to continue to report all as capital gains. I hope this is right.
Thanks again.
Larry