1099 R "Cash In Lieu"

[Terry D EA]

Client presented a Consolidated 1099DIV. Only one barter exchange that is a 34.00 loss. Beside the loss amount are the words "Cash in Lieu". I have never seen this before. Does this mean the TP received cash for this loss? Do I still report this on the 8949? Thanks

[Max W]

Because they are usually small amounts, I almost always put "Cash in Lieu" on Line 21.  However, if you are already preparing Sch D for other transactions, you include as CG.

Good luck figuring out the basis.

[Terry D EA]

Let me add a bit more information. I now realize this is possibly a fractional part of a share of stock for which the TP received a check rather than the fractional portion of the stock. Everything I read seems to lean toward this amount is reported as a gain and enter cost basis as zero. No problem, I fully understand that. But here are the figures:

.13333 Shares sold on 7/10/2017 purchased on 2/5/1999 Proceeds: 2.19 Cost basis 34054  Gain/Loss -32.35 Cash in Lieu.

Shouldn't this still be reported as a loss on the SchD and form 8949? How do you receive a check with a negative amount on it?

Edited March 17, 2018 by Terry D
Additional clarification

[Terry D EA]

Max W. The basis is reported on the 1099B. See my reply above. We were both typing at the same time.

[Gail in Virginia]

 

16 minutes ago, Terry D said:

Let me add a bit more information. I now realize this is possibly a fractional part of a share of stock for which the TP received a check rather than the fractional portion of the stock. Everything I read seems to lean toward this amount is reported as a gain and enter cost basis as zero. No problem, I fully understand that. But here are the figures:

.13333 Shares sold on 7/10/2017 purchased on 2/5/1999 Proceeds: 2.19 Cost basis 34054  Gain/Loss -32.35 Cash in Lieu.

Shouldn't this still be reported as a loss on the SchD and form 8949? How do you receive a check with a negative amount on it?

This should be "cash in lieu" of fractional share.  And when you sell something at a loss, such as a fractional share of stock, you still receive the check for the amount of the sale price.  The loss comes from the basis that you have in the fractional share being in excess of the cash you received.  I don't think that he received a negative check.  And yes, it should go on the sch d and 8949.

[Terry D EA]

Thanks Gail but does is go on Sch D as a loss from the sale or is it a taxable gain from the sale? Also, I see an error in my post the cost basis was 34.54 and not 34054. What makes sense is if you invested 34.54 and only received 2.19 then you have a loss of 32.35 even if the return of the investment was in the form of cash. Correct? I agree they did not receive a negative check.

[jklcpa]

Yes, it is a capital loss that is on Sch D.  Holding period goes back to that of the original security.  This usually results from a stock split or spin off where x number of shares are issued to existing shareholders for every existing share held, and a portion of the existing company's basis is assigned to the new company.  Then, the shares that are issued for the new company are in whole numbers with the fractional share portion being paid in cash instead of issuing the fractional share.

Example - person holds 1390.313 shs of company A that has a spin off of a division into company B and issues 1 sh of B for every 4 shares of A that is held. The spin off results in the person being due 347.57825 shs, but the person will receive only whole shares of 347 and cash in lieu of the fractional shares of .57825.  The effect on the investor's tax return is like he received all of the shares and then sold the fractional ones back to the company in exchange for the cash.

I don't know if you have a typo in the basis of 34054 (?) but this should be reported on D/8949 as:

Proceeds $2.19,    Basis $34.54,    Cap Loss $32.35

[Terry D EA]

Thanks Judy and yes I did have a typo in the OP. I did enter it as a capital loss on Sch D. I guess for some reason I had to get my head wrapped around this. Once I did, it made perfect sense. It is just one of those things when you have been working too many hours and the brain begins to get clogged. But... thanks to all who gave input here.

[SaraEA]

With the tiny amounts usually involved in "cash in lieu" sales, I usually use a basis of zero.  That way they can keep their entire original basis in the shares they do own,.  The math is complicated enough trying to calculate basis of each share when they received 1.4087351645 shares for each one they had.  Adding a couple of bucks in gains to their tax return for the partial share sold isn't going to change anyone's tax bracket.

[Lion EA]

I do exactly what Sara does, because I seldom see basis listed for the fractional share.  If Terry has the brokerage breakout with basis assigned to that fractional sale, then I would make the tax return match the 1099-B.

[Terry D EA]

I do have the brokerage statement that does indeed break out the basis. So, and as you said, I entered it exactly so the return matches the 1099B