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Confusion over Form 3922, cost basis, ESPP transfer of stock, box 8(FMV) vs box 5 (price)

 
 
Aaron FIsher
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      03-30-2011, 06:34 PM
I'm thoroughly confused what cost basis to use for my schedule D based on
the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
Purchase Plan Under Section 423(c)".

Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745

Since the same-day (exercise + sell) transaction only involved 980
shares, there is only about a ten-dollar difference in the taxable
result; but that doesn't change my confusion as to WHICH 'cost basis' to
properly use when reporting to the IRS.

Had I NOT received Form 3922 from my employer, I would have used a cost
basis of $4.9385/share (minus minor fees).

Now that I have received Form 3922, I am not sure if I should use that
cost basis (which I used in years past), or the "FMV cost basis" of
$5.0745.

Since my net, from E-Trade (after commission & fees) was $5,938.37, I
guess I can 'work backward' to an estimated cost basis ... but my
question is what's the 'right' thing to report?

For ESPP shares, do I report on schedule D a cost basis of the exercise
price (box 5 of Form 3922) or the FMV exercise price (box 8 of Form 3922)?

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      03-30-2011, 07:04 PM
On Mar 30, 11:34*am, Aaron FIsher <(E-Mail Removed)> wrote:

> I'm thoroughly confused what cost basis to use for my schedule D based on
> the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
> Purchase Plan Under Section 423(c)".
>
> Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
> Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
>
> Since the same-day (exercise + sell) transaction only involved 980
> shares, there is only about a ten-dollar difference in the taxable
> result; but that doesn't change my confusion as to WHICH 'cost basis' to
> properly use when reporting to the IRS.


If these are non qualified stock options, then your gain was already
added to your W2 and taxed. Look in box 12 of the W2 for an
indication of this, as well as in your stock paperwork. On Schedule
D, the discount price you paid for the stock plus the portion that was
added to your cost basis is the cost basis. If this was a same-second
exercise and sell then the cost basis ultimately equals FMV, and
selling price will be FMV minus commissions, leaving with a small loss
equal to the commissions.

If these are incentive stock options I'm not quite sure what the
approach is.

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
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Alan
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      03-30-2011, 09:28 PM
On 3/30/11 1:04 PM, (E-Mail Removed) wrote:
> On Mar 30, 11:34 am, Aaron FIsher<(E-Mail Removed)> wrote:
>
>> I'm thoroughly confused what cost basis to use for my schedule D based on
>> the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
>> Purchase Plan Under Section 423(c)".
>>
>> Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
>> Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
>>
>> Since the same-day (exercise + sell) transaction only involved 980
>> shares, there is only about a ten-dollar difference in the taxable
>> result; but that doesn't change my confusion as to WHICH 'cost basis' to
>> properly use when reporting to the IRS.

>
> If these are non qualified stock options, then your gain was already
> added to your W2 and taxed. Look in box 12 of the W2 for an
> indication of this, as well as in your stock paperwork. On Schedule
> D, the discount price you paid for the stock plus the portion that was
> added to your cost basis is the cost basis. If this was a same-second
> exercise and sell then the cost basis ultimately equals FMV, and
> selling price will be FMV minus commissions, leaving with a small loss
> equal to the commissions.
>
> If these are incentive stock options I'm not quite sure what the
> approach is.
>

These are qualified stock options as Form 3922 is only used for stock
purchased through an Employer Stock Purchase Plan (ESPP).

As the transaction was same day, it is a disqualifying disposition. The
cost basis is the actual price paid for the shares plus the amount (if
any) added to the W-2 as compensation that represented the discount from
market price on the date of purchase. The whole transaction gets entered
in Part I of the Schedule D.

--
Alan
http://taxtopics.net

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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Elizabeth
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      04-02-2011, 06:45 AM
On Mar 30, 11:34*am, Aaron FIsher <(E-Mail Removed)> wrote:
> I'm thoroughly confused what cost basis to use for my schedule D based on
> the 'new' form 3922 "Transfer of Stock Acquired Through an Employee Stock
> Purchase Plan Under Section 423(c)".
>
> Form 3922: Box 5 "Exercise Price Per Share" = $4.9385
> Form 3922: Box 8 "Exercise Price Using Grant Date FMV" = $5.0745
>
> Since the same-day (exercise + sell) transaction only involved 980
> shares, there is only about a ten-dollar difference in the taxable
> result; but that doesn't change my confusion as to WHICH 'cost basis' to
> properly use when reporting to the IRS.
>
> Had I NOT received Form 3922 from my employer, I would have used a cost
> basis of $4.9385/share (minus minor fees).
>
> Now that I have received Form 3922, I am not sure if I should use that
> cost basis (which I used in years past), or the "FMV cost basis" of
> $5.0745.
>
> Since my net, from E-Trade (after commission & fees) was $5,938.37, I
> guess I can 'work backward' to an estimated cost basis ... but my
> question is what's the 'right' thing to report?
>
> For ESPP shares, do I report on schedule D a cost basis of the exercise
> price (box 5 of Form 3922) or the FMV exercise price (box 8 of Form 3922)?


Use Box 5. Your "exercise price" is your cost basis + any fees that
you paid. Box 8 might be needed if you held the shares after purchase
and had a "qualifying disposition". Since you sold the shares right
away, you have a "disqualifying disposition" and you don't need to use
Box 8.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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      02-19-2012, 01:03 AM
The answer is a little more complex and depends on when you sold the stock. In this case you have indicated that it was an immediate sale. Therefore, as indicated previously this is a "non-qualifying disposition". Great, but that doesn't tell you what to do.
Here is how it works:

1.) No matter what price you sold the stock for. . . You purchased the stock at some "discount" . . 5% or maybe even 15%. You will need to pay "Ordinary Income Tax Rates" on the dollar value of this "discount". Your employer may have already reported this amount on your W2 as income and already withheld an estimate of the tax due. To determine if they did that, I check my paystub around the time of the purchase/sale event to see if the Gross earnings and Withholding for that period is higher than normal. If they did that, just don't worry about this, it's taken care of, even if they estimated the wrong amount of tax. The income is reported correctly on the W2 and your tax calculations will indicate how much tax should be paid. The W2 withholdings will include what you "did" pay and the difference will either be owed or be refunded. So forget it.

2.) Then . . you need to report a "short term" capital gain or loss on the difference between the "FMV on the purchase date" (box 4) and the Sale Price. You are thinking that the capital gain/loss should be Purchase Price (box 5) - Sale Price, but that's not true since in 1.) above you had to pay ordinary income tax on the discount, so you get to use the "FMV on the purchase date" as the basis instead of the actual Purchase Price.

That's it. .

If you had held the stock long enough (which you didn't) this becomes a "qualifying disposition" . . the rules for that are not covered here and involve the values in Box 3 and Box 8.

Hope this helps.

Example:

Box 1 = you get to ignore this
Box 2 = date of purchase = 6/1/2011
Box 3 = you get to ignore this because it is a 'disqualified disposition'
Box 4 = FMV on purchase date eg $10.00
Box 5 = price paid per share (eg with a 5% discount = $9.50)
Box 6 = shares (this is obvious)
Box 7 = date of transfer (this is obvious)
Box 8 = you get to ignore this because it is a 'disqualified disposition'


You sold this stock on 6/1/2011 as well. Let's imagine that for some reason . . the stock plummeted between when you purchased it and when it sold. And it sold for $8.00/share.

1.) Pay ordinary income tax rates (highest marginal tax rate for you) on ($10-$9.5). rememer this has probably already been done for you

2.) Report a Short Term Capital loss on ($10.00-$8.50). Also remember to increase your loss by the amount of any sales commissions or fees.
 
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      04-03-2012, 08:29 PM
How do I report the short term capital gain on Schedule D if my company sent me a letter and said you have to report a capital gain of $180.52.
 
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