Capital gains from NQSO stock sale

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  • #3137
    miamicuse
    Participant

    Some years ago I was granted some stock options (NQSO) from a privately held company. I purchased the stocks at the time and paid the taxes for it then.

    Let’s say my cost was $5 per share at the time, and the FMV of the stock at that time was $8. I was basically taxed as income for $3 per share.

    I sold 10% of the shares last year. My cost basis would have been $8 per share if there was no stock split.

    Over the years the stock split 3 times. Each time I was issued new stock certificates to reflect the split.

    So how would I calculate the cost basis if I sold some of the shares?

    (A) The original shares have a cost basis of $8, the shares issued later as a result of split have a cost basis of $0.

    (B) If the FMV of the shares was $8, after three splits regardless when they were issued have a cost basis of $1.

    Which one is correct? Can I choose which one works out better for me?

    #3138
    kaneohe
    Participant

    In the normal world,the answer would be B)$1 and after you exercised your NQSO, I think you’re in the normal world.

    #3139
    miamicuse
    Participant

    The thing is after I sold some shares the company issued 1099 reflected cost basis of $0 on the shares I sold. Since it’s privately owned I was issued stock certificates and each certificate has a serial number. When I sold shares I picked a stock certificate that was issued during a split.

    #3142
    Kaye Thomas
    Moderator

    You don’t have a choice on treatment of a stock split. Basis is divided among all shares. Choosing to sell the added shares received in the split has no effect because all the share have the same basis.

    #3186
    miamicuse
    Participant

    In that case, I would have to do my calculations based on the “correct” basis and not the basis reported by the company on their 1099s. I wonder would that cause IRS to raise their eyebrows and trigger an audit.

    #3187
    kaneohe
    Participant

    Was the 1099B provided to the IRS? There usually is a statement on or accompanying the 1099B that tells you this. Even if it was provided to the IRS,the 8949 used to calculate gain has provisions to make adjustments. If you have the numbers to back up your results, should be no problem replying to any inquiries.

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