I have a 1099-B from selling some lots of shares purchased through an ESPP. The sales are qualifying dispositions as the shares were held longer than 2 years from the grant date and 1 year from the purchase date.
The difference between the (discounted) purchase price and the FMV on the grant date should be reported as ordinary income. I will need to add this to my 2019 income (1040 line 1) myself. It could have been included in a W-2, but was not, since I no longer worked for the company in 2019.
The way the Form 8949 reporting should have been done is:
The brokerage should report the discounted purchase price as the cost basis to the IRS. This would be entered in column e. The amount added as additional ordinary income, describe previously, should be entered as a negative adjustment in column g, and code
B entered in column f. Option
D, "cost basis reported to IRS," would be checked on form 8949.
This avoids double taxation on the amount taxed as ordinary income and the cost basis is, effectively, the FMV on the grant date.
But my 1099-B did not do this!
For one lot, no cost basis was reported to the IRS. For another lot, the cost basis was reported, but as $0 and a purchase date of 1/1/1900.
For the lot with the basis reported, I think what I should do is:
Put the 1099-B basis, $0, in column e. Enter the real purchase price plus the amount taxed as income (added to 1040 line 1) as a negative adjustment in column g using code
B. This achieves the same result as the proper accounting, with the entire basis now in column g instead of e, due to the incorrect value reported to the IRS.
For the lot with the basis not reported, I think I should enter in column e the actual purchase price. The instructions say to enter the "correct basis" when it was not provided on 1099-B and that's what it should have reported. I would still enter the amount taxed as income in column g as an adjustment with code
B. But it does seem possibly wrong to report my own basis and also use code
B to claim the basis is incorret.
But I see how this could also be done differently.
For the lot with $0 basis reported, I could enter the purchase price in column e and the amount taxed as income as an adjustment. I think this is wrong. It seems the IRS really wants you to put exactly the basis reported to them in column e and handle everything else, in my case both incorrect purchase price and amount already taxed as income, as an adjustment.
For the lot with no basis, I could enter the FVM on grant date (equal to purchase price plus amount taxed as income) as the cost basis and have no adjustment.