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handling NSO on 1040
Posted by: rm, March 3, 2016 05:59PM
So I did same day sale on NSO last year. The gain was include as income in my W2 as code V. My broker also included it in his 1099B and classified this as short term gain with basis reported to IRS

When I file 8949/schedule D it comes up as gain. My CPA is saying he will just change my cost basis so that my gain will be zero. However, since this has been reported to IRS I am afraid it will lead to audit.

To prevent the hassle, I was saying do it as an adjustment in the following coloumns.

Q1) What is the best way?

Also in his tax software my stock sales show up "See attached" in the description coloumn. When I do turbo-tax it shows up as 100shares of xyz. He says thats okay because the IRS nowdays gets the 1099-B so not an issue. ps: There is no other attached document so I don't even know what "See attached" means

Q2) Is this a new thing. Haven't seen this before

Re: handling NSO on 1040
Posted by: Art, March 5, 2016 03:27AM
The amount in box 12 code V has already been aded to your W-2 box 1, so no need to be concerned about the exercise side of this. It;s been done for you.


Accounting for the sale results in little or no short-term capital loss.

There are a few allowed ways to report this all, varying by what is entered in the description box, including

a) 100 xyx

b) if broker reports cost basis to the IRS (covered sale) you may bypass reporting the sale on form 8949 and add it to Schedule D as short term

c) "See attached" is a hint that there will be an attachment. The attachment could be the broker's gain/loss statement, and a Form 8453 will be generated with form 8949 checked on the 8453. Once the efiled return is accepted (postmarked) by IRS, physically mail the form 8453 and the attachment to IRS, Austin TX.

I don't know if an attached .pdf file can be used in lieu of the attachment to an 8453, but I would think it should.

If there is no efiling for this return, just attach the attachment to the paper return and file it.

Attachments and use of see attachment on the Sch D originally, and more recently the 8949 has been around for at least 10 years.

Incidentally for UltraTax users, entering See attached on an 8949 will compel an 8453 to be generated.

Re: handling NSO on 1040
Posted by: Kaye Thomas, March 5, 2016 04:23PM
IRS instructions on how to handle this situation are clear. The broker has reported incorrect basis to the IRS, so the transaction must be reported on Form 8949, with the broker's basis in column (e), code B in column (f), the amount of the adjustment in basis in column (g), and the correct amount of gain or loss in column (h). This situation is not at all unusual, and if you report it in accordance with these instructions there is no reason to be concerned that it will lead to an audit. Preparing the return with some other method may lead to unnecessary problems -- not necessarily an audit, but possibly a delay in processing your return and the need to respond to correspondence from the nice folks at the IRS.

Kaye Thomas
Fairmark.com

Re: handling NSO on 1040
Posted by: Art, March 8, 2016 02:12AM
Thanks, Kaye.

Re: handling NSO on 1040
Posted by: rm, March 16, 2016 03:46PM
Thanks Kaye

Anything to add on the other question as well..


Also in his tax software my stock sales show up "See attached" in the description coloumn. When I do turbo-tax it shows up as 100shares of xyz. He says thats okay because the IRS nowdays gets the 1099-B so not an issue. ps: There is no other attached document so I don't even know what "See attached" means

Q2) Is this a new thing. Haven't seen this before



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