If my client filed an 83b election on a Restricted Stock grant, but the company did not include the income in his W2, how do I enter the income in Proseries?

[mark28321]

I entered the detailed information in the Employee Stock worksheet, clicked the box that it was not on the W-2 and it shows that the income will flow to Line 7. However, ProSeries is also generating a Capital Gain worksheet and asking for info to report a sale of the restricted stock, and I can't figure out how to show the stock as held by the taxpayer, not sold. 

[itonewbie · Accepted solution]

This is one thing I don't understand with PS, that everyone seems to be really hung up on this employee stock worksheet.

Did your client actually follow the Rev. Proc. to file the election both with the IRS and the employer?

If so, the employer has an obligation to withhold on and report the income on the W-2 and that would allow them to take the §83(h) deduction.

Your client should work with the employer to get a W-2C issued assuming everything is above board.  In case the employer is not cooperative and provided you are satisfied that the election should be valid, you'd then report the income on Line 7 in accordance with the election and attach a F.4852 to the return.  Needless to say there's no capital gain.

[mark28321]

Thank you for your reply.  The client did file the election with both, but he is insisting that his employer did not include the income in his W-2. I agree it is incorrect, but I thought I could just use the Employee stock worksheet to report the compensation income. The worksheet appears to allow that the restricted stock grant may not be included in the W-2 since it has a check box for that. It even indicates it will flow to Line 7. However, using this form generates the Capital gain worksheet and I can't override it. I didn't realize I had to use a Form 4852 to report it as compensation. Thanks for your help.

[itonewbie]

Not a problem, Mark.  You can simply include the bargain element for the valid election and make sure you include the F.4852 for that.

[itonewbie]

"he is insisting that his employer did not include the income in his W-2"... so, you haven't seen his compensation breakdown?  I'd start with that just to make sure nothing is amiss.  I'd get proof that the election was filed on a timely basis with both and that the RS does qualify.

The employer's refusal to recognize the election would also have a knock-on effect on dividends; if any is paid, it'd be reported as compensation on his W-2 instead of normal dividend.

[rbynaker]

Unfortunately, most of the time, clients have no idea what they're talking about.  For any client with any sort of equity compensation I always request the year-end paystub.  Sometimes they're cryptic but once you decipher them, they're a gold mine of information when you're trying to unravel this stuff.

If the employer did not include this, then he really needs to go back to the employer and get it fixed.  Either the 83(b) was not properly filed (which likely makes it invalid), the employer did not properly communicate with the payroll provider (need a W-2c), or the employee misunderstood what actually happened.  There's no way I would use the PS Wks to add compensation in this circumstance.

[itonewbie]

Agree something doesn't smell right.  That's why the OP should really examine all the facts.  If everything checks out, there should be sufficient authority to report the income based on the election as I recall there've been rulings that administrative errors do not nullify §83(b).

[mark28321]

Thank you all. We have reviewed each check stub for the year, and in total, they match the W-2. There is no adjustment made for the small amount of 83(b) income. My client has a signed copy of the election form and the employer has the receipt from mailing to IRS. He is going to talk to his employer today about getting a W-2c.

[PRIYA]

Hi. Thanks for your valuable input. So i add the amount to line 7, generate a dummy W2, and form 4852 just to give the explanation, and file the return? Any FICA tax consequence?

Any leads would be helpful.

thanks,