Form 3921 Stock Options

[MsTabbyKats]

Client got this form.....

Exercise price is higher than fmv on the date the option was exercised.

I've been researching this all day. Nothing is on the W-2...I guess because there wasn't a gain. Is he allowed to take a loss?

[kcjenkins]

No loss, just a higher basis.

[Pacun]

I guess you got the answer you were looking for so please allow me to embed my question.

Client claims that he has to exercise his option or he looses the money when they mature, is that correct?

I saw the papers from his employer and the exercised his options last year. He had about 8K and the company charged him about 4K to get his money. So his taxable amount was a little bit more than 4K which was added to his W-2 and listed with code V. He also showed me a document from Fidelity showing that he sold about $8,150 and his basis was $8,300 so he had a short term lost for $150. Based on the answer above, he cannot show a loss on form 1040, correct?

Thank you.

[joanmcq]

Sure, the loss is $150. This is the usual effect of a same day excercise & sale of non-qualified options.

[joanmcq]

Client got this form.....

Exercise price is higher than fmv on the date the option was exercised.

I've been researching this all day. Nothing is on the W-2...I guess because there wasn't a gain. Is he allowed to take a loss?

What type of option was it? And was there a sale or just an exercise?

[Pacun]

I am not sure. This is what I see happens. Client goes to his employer and says that he needs to "sell" or simply that he needs his money. About a week later, employer sells for him and fidelity sends check to employer. Another week later, the employer keeps about half of the amount taken from Fidelity and gives him a check through payroll for the other half. At the end of the year, employee gets W-2 with code V and then he gets a form from Fidelity listing that he sold and he lost $150.

[Catherine]

With a lot of these options, there ends up being a small short-term capital loss. All of what would have been the "gain" gets included in the W-2 under that Code V and so is taxed at OI rates. After trade fees etc., there is usually a small loss.

[MsTabbyKats]

What type of option was it? And was there a sale or just an exercise?

No sale...company hasn't gone public yet.

[joanmcq]

You need to know what kind of options they are: nonquals have a different tax treatment than restricted stock, than ESPPs than incentive stocke options. For example, ISOs are taxed for AMT at exercise, but not for regular tax.ask for the documents from the company regarding the options.

[Taxing Situations]

I have a similar issue. Only this is a disqualified option. Company included GAIN in T/P's W-2. Okay, I follow that. Fidelity issues a 1099B that shows basis as determined by client's 3922 form. So now gain is on line 7 of the 1040 and on Sch D. Fidelity is reporting this as "basis not reported to IRS." Trying to find some documentation to substantiate upping basis to include gain included in the W-2. Any ideas?

[joanmcq]

What type of DQ option is it? ISO, restricted stock? ESPPS?

[Taxing Situations]

Believe the client has an ESOP. Again, the company upped his W-2 for the cashless sale gain. Fidelity is reporting the transaction, but indicating that they are not reporting basis, although the basis indicated on their forms is what was computed from the company's form 3922. Still, T/P has gain in his W-2, and gain on his Sch D unless I can up basis.

[Crank]

With a lot of these options, there ends up being a small short-term capital loss. All of what would have been the "gain" gets included in the W-2 under that Code V and so is taxed at OI rates. After trade fees etc., there is usually a small loss.

Yes, the loss is usually the fee to execute the trades.

[joanmcq]

Believe the client has an ESOP. Again, the company upped his W-2 for the cashless sale gain. Fidelity is reporting the transaction, but indicating that they are not reporting basis, although the basis indicated on their forms is what was computed from the company's form 3922. Still, T/P has gain in his W-2, and gain on his Sch D unless I can up basis.

How is fidelity calculating the basis per the 3922? it should be spelled out clearly. the amount added to the W-2 is the amount of discount, since in a DQ disposition the spread is taxed as wages. ESOPs are a little different than NQSOs. If there was time between exercise & sale, there can be more gain/loss than in a same-day exercise & sell.