1

I was granted company restricted stock with a vesting period of 4 years. I was under the impression that upon vesting, the stock is taxed and that's all I owe. I could then sell the stock and that money was mine. But I just received a CP2000 letter saying I owe short term capital gains tax as well. Is this right?

From the stock prospectus:

B. Stock Appreciation Rights Our grant of a SAR to you is generally not a taxable event for you. Upon your exercise of the SAR, you will generally recognize ordinary income equal to the amount of cash and/or the fair market value of any shares you receive. You will be subject to income tax withholding at the time when the ordinary income is recognized. If the SAR is settled in shares, your subsequent sale of the shares generally will give rise to a capital gain or loss equal to the difference between the sale price and the ordinary income recognized when you received the shares, and this capital gain will be taxable as a long-term capital gain if you held the shares for more than one year.

My 1099-B is reporting $0.00 for cost basis and I'm wondering if that is the problem. Shouldn't the capital gains tax just be on the difference between the price at sale minus the price at vesting? I'm really not good at finances, but something seems very wrong here.

Improve this question
2
  • 1
    You need to provide more information - did you file an 83(b) election, how did your employer treat the transaction, did you sell the stock, etc.
    – Jack Fleeting
    Commented Aug 3, 2019 at 19:38
  • @JackFleeting Updated the question. I did not file an 83(b) election and I sold the stock shortly after vesting.
    – bdetweiler
    Commented Aug 3, 2019 at 20:41

1 Answer 1

Reset to default
1

You are on the right track: since you didn't file a Section 83(b) election, no taxable event has occured until the SAR vested. So let's assume that at the time of vesting, each share had a fair market value of $10. At that point you had ordinary compensation income of $10, reportable on your W-2. Also at the point, you had acquired a cost basis of $10 per share. Assuming that later in the same year you sold the shares at $13 per share, you had an additional short term capital gain of $3 per share - reportable on a 1099-B. Using a $0 cost basis on your 1099-B was obviously an error - it should have been $10.

If there's a proceudure for getting your broker to issue an amended 1099-B, use it. Else, you'll have to explain the problem to the IRS along these lines.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .