Cost Basis Question?

Question

I'm not even sure the IRS cares about such a small amount, but here goes:

I received 48 shares of stock over the space of about 6 months in 2000/2001 from my company (not on an ESPP, as a bonus). These shares sat there until 10/2005, when the company went through an 8:1 reverse split -- then I had 6 shares.

In 03/2006, the company was bought out and I received a few bucks for the shares. Now I have to report it. They want a cost basis. Here is what I can figure out:

* 21 shares given to me on 10/25/00 -- I have no idea what the value was, but my statement for the end of that month prices the shares at $27.13

* 27 shares given to me on 04/24/01 -- again, not sure of the value on that day, but the statement for the end of that month values the shares at 15.68

Averaging the shares out leaves me with a price of 21.41 -- my question is, do I use this price as the cost basis, or am I supposed to multiply it by 6 (my reverse split share total) and use *that* number?

No, I didn't buy them -- they were stock options deposited into an "OptionsLink" account on ETrade, part of an employee perks thing (here's your salary + stock options...weren't the dotcom boom days lovely...?)

Does this make a difference? At this point, I have no idea.

Answer 1

I am just a little puzzled by the way you worded the explanation. You say they were given to you. You did not purchase them? If you purchased them, the total cost to you is the total number of shares you bought times the price you paid $998.49. Now if the share were given to you, I believe your cost basis is the same if I understand the tax consequenses of gifts correctly. Take the amount that your received when you sold your 6 shares and subtract $998.49, the result is your gain or loss. From the sound of things, you may have a loss.

Answer 2

Your basis would be what you paid for them, not what they were worth when you got them, or any time later, unless you paid taxes on the value of them when you got them. If the shares were given to you, and you didn't pay tax on the value of the shares when you got them, your cost basis is zero. If you paid tax on their value at the time you got them, then the amount they were valued at then would be your basis. If they were given to you as a bonus, then they really should have showed up somewhere that year as taxable income.

If the value was taxed to you in 2000 and 2001 when you got them, then your per-share basis would be those amounts times 8 for the reverse stock split. But the schedule D asks for your total cost, not per-share basis.

And yes, the IRS cares even about small amounts.