Code V on W2

[mcd1231]

Good morning:

I am having a brain freeze here.  My client has Code V on his W2 (income from exercise of nonstatutory stock options for $30,265. His 1099B has proceeds of $9,186 and basis of $9,253 ($67).

How do I report on Form 8949?

[itonewbie]

NQSOs are not accorded any tax preferential treatments.  The bargain element will have already been subject to tax in Box 1 of the W-2, which forms the basis.  The custodian broker would have good records of these transaction and could generally be relied upon for the information they provide.

Unless your client feels that the amounts reported on the 1099-B is not correct, you should go with what's reported on the form.  Given the small amount of loss, it's probably a same-day exersale, which was used, at least in part, to fund the exercise.  The difference is probably a combination of transaction costs and small fluctuation in the share price.

Since this is a covered security and the basis is reported to the IRS, it does not need to be reported on F.8949 and can go directly to Sch D (unless there are other adjustments that need to be made for some reason).

[mcd1231]

I didn't mention the Code V was in Box 12 of his W2.  Shouldn't I ask him if he exercised these options? 

[itonewbie]

We always ask for compensation breakdown and details of all options granted and exercised (but that's also because we need details like these for expat tax).  Personally, I find having these details useful - even if it's not needed in the current year, we'll have them for future years.

You should also request detailed statement(s) that support the 1099, if you don't already have that on file.

[rbynaker]

I always get the details too (and load it into a spreadsheet).  Sometimes it's not needed but when it is, it's *really* nice to have a good history.  My worst horror story (several years ago now), client had ISO, ESPP and NQSO from his employer (all in different accounts).  Employer got bought out by another company and all of the swapped shares ended up getting dumped into the one account at a new broker.  New broker had no basis data.  So we were able to sort back through all of his exercise reports (fortunately he kept meticulous records) and establish basis for everything then translate old company basis into new company basis, then figure new company gain/loss.  This was a massive undertaking but the dollar amounts were well into the six-figures.

Lately it's been useful to have the data in a spreadsheet to deal with wash sale adjustments.

So, unless your clients are doing same-day sales, at some point you're going to want basis info.  Sometimes the brokers keep good records on this but sometimes I have to make adjustments.

Rick

[itonewbie]

Agree, @rbynaker!  They do come in handy when you need them.

[KLC]

Hi, It sounds like you understand NQSO's. I have a client with over $500K in box 12 with a code V. I have the 1099-B from the broker and it shows cost basis of what he bought it for but it does not include the $500K that was included in income. That has normally never been a problem for me. I just put the amount that was included in the W-2 on the worksheet as an adjustment and it's correct.

This year in Proseries we have to choose a code (Code B) and make the adjustment as a negative number. It's totally different from before. That difference between the amount he paid and the amount on the W-2 is going to Form 6251 line 2K and causing this client to get Alternative Minimum tax. I know it's wrong or at least I am 99.9% sure it is wrong. Would you agree? Is there a place for me to post this so Proseries can look at the calculation.

Thank you.

[itonewbie]

@KLCIt don't use PS but it sounds like it's the way input is (or rather has to be) made, if the number of F.6251, Line 2k, is positive and is the difference that you adjusted with Code B.  That would be because the adjustment you entered is registered only for regular tax and not AMT.  What you need to do then is to make the same basis adjustment for AMT.

[KLC]

Thank you for your response. I guess I need to figure out how to make the same basis adjustment for AMT. Should I just zero out line 2K on Form 6251?

[itonewbie]

@KLC  No, you shouldn't have to zero out Line 2k once you enter the AMT basis adjustment.  Since there will be no difference between the gain to be recognized for regular and AMT purposes, Line 2k will be zeroed out naturally and should not require any override.

[mcd1231]

Thank you. This was an issue on last year's return.  All set!