Pondering NUA Wipe-Out Alternatives
No Ulterior Motive here–just wondering where my reasoning almost certainly has gone astray in considering my NUA disposal options.! Form 1099-R issued for my LSD NUA in 2000 has all appropriate boxes filled in–gross distr./taxable amt./distr.normal&total/and in box 6 the $ NUA. But nowhere do I find no. of shares or tax basis per share. Employer’s LSD papers sent to me provide all necessary share info, so can calculate–and adjust for subsequent stock splits–the per-share basis and NUA components. I can well understand the IRS’s attention on securing LTCG tax on full NUA. But I wonder if tax people somehow know original LSD per-share nos. (acquisition cost & NUA amt.). Subsequent share splits add another complication to maintaining correct records. And with estate plans, it may be decades before the NUA considerations are eliminated. Can the per share info noted above be back-calculated somehow from 1099-R? Did employer send supplemental info to IRS to be matched with this LSD? Does broker have obligation for reporting tax basis on current transactions relating to share issuance in 2000? Does broker have need to know re all NUA details? (Broker holding our shares doesn’t have tax basis or NUA info on our deposit in 2000.) Point here is: Could sale results of NUA shares be modified reasonably by taxpayer to accelerate write-off of full NUA amt.? Say: Total NUA=$210k; NUA per share=$60 (3,500shs); tax basis per share=$20; FMV=$80. Case 1- FMV, now 100, less 20 basis & 60 NUA component = 20 appreciation. Case 2 (modified reporting results) FMV 100 less 20 basis & 80 NUA component = -0- gain. In both cases, IRS’ tax take is even (assumes LTCG on NUA pc.& any appreciation). But in Case 2, IRS obtains full tax recovery on total NUA amt. at a faster rate, with more simple record keeping by shareholder and without forced complete disposal of original total 3,500 NUA shares. Surely this is not an unstudied matter! But my research has not found any clear discussion. Appreciate very much any comments.
Permalink Submitted by Alan - IRA critic on Sun, 2016-04-10 01:01
Permalink Submitted by BARTON MASSEY on Sun, 2016-04-10 23:47
Alan, Thanks very much for response with welcome detail! Your discussion will serve as a very helpful checklist. As you expertly posited re a messy situation likely made worse if LSD share dividends were to be reinvested, that is exacly the case here, where from first distribution in 2000 through today, all dividends have been fully reinvested, including split shares — and no original/split/ or dividend shares have been sold or otherwise removed from the original brokerage account. The broker has asked us for total and per-share cost basis numbers for the LSD deposited shares, but I’ve not responded due to uncertainty re our own best interests. I’m loath to stretch Forum rules for topic length, but I’d like to clarify a point that may have been unclear in my original post, and also ask a question on a point you mentioned that’s very real in my case–loss of NUA.1. Case 2 was meant to highlight an alternative treatment of Case 1 with respect to NUA writeoff, not pose a different set of sale details. Both Cases have same per share FMV ($100) and tax basis ($20), but Case 1 uses the correct NUA per share amt. ($60) so generates a taxable profit ($20), while the seller in Case 2 opts to supplement the NUA amt. ($60) by also designating the full taxable profit ($20) as NUA writeoff In each case, the IRS collects full LTCG tax on $80, but in Case 2, the wipe-out of total NUA is progressed faster (by$80 vs. $60). Moreover, Case 2 avoids forced sale of the full original NUA share quantity while not affecting the IRS’ total tax take on that sale. Seems like I’d be indifferent from a LTCG tax standpoint on whether my per share sale proceeds were designated “basis(20)+NUA(60)+appreciation(20)” vs. “basis(20)+NUA(80).” But the latter choice would seem to provide a simpler and faster way to wipe out the total NUA amt.,especially if all LSD-related shares–original/split/dividend reinvestment–could be applied for NUA purposes. Perhaps I’m overlooking the effects of no step-up at death on NUA shares and the associated IRD treatment– the complexity continues to accumulate!2. A very real possibility in our case is that a sale of NUA shares, after deducting basis, would not provide enough balance to cover the split-adjusted original per-share NUA value. You described this possibly, but I’d like to recheck the wording of the third sentence-first clause: “For shares you keep the regain lost value,” the NUA is reinstated. . . .” Sample case: FMV 30, basis 8, NUA per share 24, loss 2 –would write off NUA 22 and allocate the 2 NUA shortfall over remaining NUA shares. Current L-T tax loss of 2.Thanks again for your thoughful much-appreciated help. Bart Massey
Permalink Submitted by BARTON MASSEY on Mon, 2016-04-11 01:50
Alan: I have no idea why my careful effort to format last msg. in a most readable form (para., nos., spacing, etc.), totally failed. It looked o.k. as finally prepared before sending, yet version shown in forum looks like a mess! Sorry!B
Permalink Submitted by Alan - IRA critic on Mon, 2016-04-11 19:08