Calling all you Tax People

[Mumbly]

Hopefully got it figured out

 

[Jacob_Marley]

So long story Longer, I work for walgreens, have done so for the better part of my life. When they opened their 4000 store every employee was gifted 100 Shares of Stock option with a purchase price of 27.75. several years down the road, after WAG stock tanked a couple times, i decided to cash it out when it was around the $37 mark (january 2009). well the final sale price was $37.15. so after i cashed it out, taxes were taken out and i received a fat check to the tune of $571.09 (I'm getting all this info from my statement from Fidelity) Fast Forward to today, i open a letter from the IRS stating i Owe them $570 for taxes on the sale of said stock option.

There is an option on the letter to fight the changes.
so a couple of questions

1. I already paid the taxes on the difference. can they charge me taxes for the full amount of the sale since it was a stock option?

2. If i were to fight this what information should i include?

Any other tips or info you have would be great.

You use the term "100 shares of stock option". You need to clear up exactly what they gave you. They gave you 100 shares of stock? ... an option to buy 100 shares? ... 100 options contracts (which would allow you a particular price to buy 10,000 shares of common stock out of your own pocket) ?
From your description, particularly with with quoting the "sale price" it sounds like they did not give you options contracts but actual stock. Assuming that is the case ...

First, understand you need to check with an actual CPA or tax adviser, and I am NOT giving you tax advice other than the recommendation to check with a CPA or tax adviser ... however, just for conversation ...

If the stock was given to you straight out as a gift from your employer, then it was likely supposed to be reported as income in the year you received it. And as such, your employer should have added it to your W-2 under “wages”. So, when you paid your taxes that year, it should have been accounted in to your taxes for that year as income and consequently automatically dealt with at that time.

If the stock was given to you within an “ESPP” (Employee Stock Purchase Plan), then you would be liable for the tax when you sold it.

If what they actually gave you was Restricted Stock (sometimes referred to as “144” stock or “rule 144” stock) that was not “vested” to you yet (that is, you had to wait a certain number of years and stay with the company before you could do anything with it) .... then it’s a bit different and the value is established, and in some circumstances reportable on your taxes, in the year that it “vests” ... that is, the year you are eligible to do anything with it, regardless of whether you actually did anything with it at that time or not.
If this is the case, at that time IF it was just Restricted stock given to you straight out, it would be valued (your tax basis would be determined) by subtracting the value on the vesting date from the value when you sold the shares ... this is taxed as capital gains.
ON THE OTHER HAND, if it was Restricted Stock Units (RSU's) within an actual Stock Compensation Plan, then it would be taxed as *income* on your taxes FOR the year it vests.

And on the other hand again ... somewhere, somehow there could have simply been an administrative error ... a box not checked, a moron in the back office ... whatever. In which case it could all be a mistake.

Complicated stuff.

This is really NOT something you can guess at, nor something that I can give you any further advice which will allow you to resolve the issue.. You need professional tax advice. But first, you need to write down for yourself the exact nature of how the stock was given to you and get every single piece of paperwork all in one spot. Then, I’d suggest doing some reading online ... homework ... to get yourself acquainted with how to even speak about it ... then and ONLY then, call around to a number of CPA’s and tax offices and try to get anyone to discuss the issue with you. Most will not, they will want $$$ ... but you might find a tax preparer or two who will be nice and give you some input.

If it keeps you up at night, you might obtain a copy of the IRS Publication 551 and read up on the issue ... THAT will put you to sleep at least. ( Publication 551 (07/2011), Basis of Assets )

Anyhow, like I say ... my points to you above should be construed as nothing more than “cocktail talk”. You need to get professional tax advice ... but first do all your homework. And don’t put it off; the IRS gets angry if you string them along.

 

[Bobby_M]

Jeez, it's been a long time since I had a similar situation but I do remember paying taxes in the year that I exercised the purchase option. At the time the actual value was $20 more per share than the option and what I don't remember is if I paid taxes on the difference at the time I purchased. I'm pretty sure that's how it works because the moment you buy them at a discount, you have benefited. Of course, it takes your new basis up to the fair value on the day you purchased so if you sold the shares for say $10 over that new basis, you'd only owe a percentage of the $10 per share gains.. In any case, there's no way you'd owe $570 in tax if that was your gross proceeds from the sale. Someone screwed up there.