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Posted by Rhickey on April 4, 2007, 2:39 pm
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Employer gifts stock in private company to employee in 1994.
Employee sells stock back to employer in 2006. Employer
gives 1099-misc to employee for $3000.
This smells like employee compensation. Should employee
file substitute w-2? Employee is still employed by
employer.
Help.
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Posted by Stuart A. Bronstein on April 5, 2007, 2:27 am
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> Employer gifts stock in private company to employee in 1994.
> Employee sells stock back to employer in 2006. Employer
> gives 1099-misc to employee for $3000.
>
> This smells like employee compensation. Should employee
> file substitute w-2? Employee is still employed by
> employer.
Seems to me that if it was compensation (probably was), it
was compensation in 1994.
Stu
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Posted by Harlan Lunsford on April 5, 2007, 2:27 am
Please log in for more thread options Rhickey wrote:
> Employer gifts stock in private company to employee in 1994.
> Employee sells stock back to employer in 2006. Employer
> gives 1099-misc to employee for $3000.
>
> This smells like employee compensation. Should employee
> file substitute w-2? Employee is still employed by
> employer.
Smells fishy, yes.
Are you sure the 1099 was in connection with said stock
sale? I would guess the "gift" was worth the 3000 on the
1099 and that's how they chose to handle it. If so, you'll
need to explain with the tax return (paper filed of course)
what happened and place the transaction on schedule d, short
term of course.
ChEAr$$,
Harlan Lunsford, EA n LA
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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Seth Breidbart on April 5, 2007, 2:27 am
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> Employer gifts stock in private company to employee in 1994.
> Employee sells stock back to employer in 2006. Employer
> gives 1099-misc to employee for $3000.
>
> This smells like employee compensation. Should employee
> file substitute w-2? Employee is still employed by
> employer.
It was compensation in 1994, at then fair market value. If
the sale price in 2006 was at fair market value, it's long
term capital gain (loss). If it was above fair market
value, the excess is employee compensation.
Seth
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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Shyster1040 on April 9, 2007, 3:29 am
Please log in for more thread options Except in extremely weird circumstances, there is no such
thing as a gift from an employer to an employee.
The grant of stock to the employee was compensation for
services rendered, and should have been recognized as such
by the employee for the year in which the stock was not
subject to any substantial limitations on transfer or any
substantial risk of forfeiture. The amount to be included
as ordinary compensation income would have been the FMV of
the stock as of the date that it was no longer subject to a
substantial risk of forfeiture or substantial limitations on
transfer. See Code Sec. 83.
As a result, when the employee sold the stock back to the
employer in 2006, the employee would have had long term
capital gain or loss to the extent that the amount realized
on the sale exceeded or was less than the amount that the
employee originally included in income.
Further, that gain/loss would not have been a compensation
transaction, and the employer should not have issued a Form
1099-MISC to the employee in 2006. Instead, the employer
should have included on the appropriate Form W2 the amount
that the employee was required to initially include in
income as ordinary compensation income as a result of the
grant of the stock. The employer should also have withheld
FICA, FUTA, and income tax with respect to that amount.
Insofar as what the employee should do now, assuming that
none of the foregoing was done as it should have been, that
is a more interesting question which should be given some
thought and some research.
Essentially, at this point the statute of limitations has
run on the original failure to include, assuming the stock
should have been included prior to 2000, unless the return
for that year was never filed, or was fraudulent (a slight
possibility). In that case, the IRS would be unable to
assess a deficiency for the year in which the income should
have been included.
However, under some variant of the tax benefit rule, the IRS
might be able to argue that, since the employee never
included the value of the stock in income as ordinary
compensation, the employee had no basis in that stock, and
that the entire amount realized should be treated as gain.
With respect to the Form 1099-MISC, I am inclined to say
that the employee should ask the employer to withdraw the
form, and failing that, should include a statement on Form
8275, Disclosure Statement, to the effect that the form was
improperly issued because it represents the gain realized on
the sale of employer stock back to the employer during 2006,
which was a capital asset transaction, and not ordinary
compensation for services rendered for 2006.
Of course, the problem there is that you've already told the
IRS where the second shoe dropped, and they are likely to go
looking to see where the first shoe dropped (i.e., they'll
review past returns to see if they can identify when the
stock was included in income as compensation). They are
therefore much more likely to audit assert a deficiency as
mentioned above.
<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>
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