sell of appreciated stock NUA from prior retirement plan

Submitted by steve jackson on Thu, 2014-04-03 21:52

Moved separated highly appreciated stock to NQ brokerage account 2/2013 to preserve NUA, did liquidated 401 funds to separate rollover IRA. Sold some of the stock in NQ brokerage one week later and some three months later 5/2013. The 1099-B,Box 3? did not show cost basis( Which I have) how do we correct and clarify for their filing? maybe 8949? so individual gets stepped up credit. I believe they will pay Ordinary income on original cost basis but will receive Long term capital gains treatment on the difference between cost and market sell price even though not held 12 months?
TKS
SC



Submitted by Alan - IRA critic on Thu, 2014-04-03 22:16

The IRS does not specify a reporting method, so the following is a way to improvise for the reporting. The 8949 would have to show the cost basis per share (1099R Box 2a divided by number of shares) and sales price up to the value upon distribution (the NUA) in the LT section of the 8949. If there have been gains after distribution, those gains are not NUA and would be taxed at ST cap gain rates since they were sold in less than one year. This portion would have to go on the ST section of 8949, and show the cost basis of the full value per share upon distribution and therefore the gain would only be on the gains after distribution. Show acquisition date as date of distribution. Include explanatory statement that explains each of those entries. I assume that the 1099R for the distribution of NUA shares showed the correct Box 2a and 6 amounts. If anything in box 5 (after tax contributions) please advise.

Submitted by steve jackson on Fri, 2014-04-04 21:44

Employer custodian issued 1099R for 2013 – released funds January 2013Box 1 included Total market Value of stock at distribution (about 1900 shares) and (plus what appears to be unpaid loan balance)Box 2a includes distribution basis (I think) (plus what appears again to be unpaid load balance)Box 6 does have NUA Box 5 is 0Box7 is code 7New Custodian took funds February 2013Sold some shares same month (February) with no gain in stock from time of distributionSold some more a few months later with stock having appreciated.New custodian issued 1099- that included the sale 1300 share of the 1900 originally transferredBox 2.a had total sales price of the 1300 sharesBox 3 was 0 as they did not have cost basis ( I have it and on employer 1099-R)Both 1099R- has gross distribution and 1099-B has gross proceeds from sale of stock.Are they being hit twice for same stock? It appears so. How to correct?

Submitted by Alan - IRA critic on Fri, 2014-04-04 22:12

  • There is no double tax here, and forms sound correct. Ignoring the offset distribution of the loan balance which is taxable, the 1099R does NOT show any after tax contributions made to the plan or at least not assigned to the employer shares. The portion of 2a that does NOT apply to the loan is the cost basis of the shares. Divide that amount by 1900 and you have the taxable cost basis per share. That is taxable on line 16a and 16b and since 1300 shares were also sold, the LTCG is reported on Form 8949 and Sch D. The LT gain is only on the NUA amount per share, that being the excess over the cost basis. This is not double taxation, it just splits the taxes between the higher rate on the cost basis and the lower CG rate on the NUA. This is a lower tax total than a distribution without NUA would be because then the entire value would be taxed at the higher ordinary income rate.
  • It is unlikely that the 1300 shares were sold for the exact same amount they were worth when distributed. They either received more per share or less than the value when distributed. If more, then the amount the shares increased goes at the higher ST rate and you have 3 different portion of tax on these shares. If they sold for less, then the amount of NUA per share is just reduced. and there would be no ST gain. The key is to break down the value per share when distributed, the cost basis per share, and the amount realized from the sale per share. Then the 8949 can be completed for the 1300 shares sold.
  • This is more complex than usual because of the loan balance being included on the same 1099R as the share distribution.

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