I'm a tax advisor with a client who did independent consulting work and was granted stock back in 2016, but never claimed the value of the stock of $400,000 as income in 2016. He never received any tax forms, so did not know he had to.

The client sold all stock in 2018 for $200,000, so he had a $200k capital loss. On the 1099-B it shows a zero basis.

What would you do? Would you amend the 2016 return to show the stock income of $400k and carry that basis forward to 2018, or just report the whole 1099-B in 2018 as a capital gain with no basis? I'm thinking we need to amend 2016, but I'm curious if anyone would handle this differently.

Thank you,

  • 2
    Ouch. Unless he had a lot of capital gains to offset those losses it sounds like he is in a bad way. An expensive lesson that $400K in tax-free income is a bit too good to be true.
    – JohnFx
    May 6 '19 at 23:17
  • 1
    I agree, I don’t see any option but to amend 2016.
    – prl
    May 6 '19 at 23:35
  • When you say he was "granted stock", do you mean that he was given stock in a publicly-traded company as compensation for his consulting work? May 16 '19 at 22:39
  • Yes, given stock as compensation.
    – Pandazoic
    May 16 '19 at 23:02

Amend the 2016 return. Otherwise, he's getting the unfair (and probably illegal) advantage of the 200k loss all at once, rather than having to spread it out with a carryforward.

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