TAX Help -please

[maslarcpa]

I have a client who is likely to get a presidential appointment soon. Due to the conflict of interest guidelines, he will be required to sell large holdings in Exxon stock which he has held for years (& in fact inherited it). Someone told him that there is a special tax break in which he can sell the shares, reinvest in a mutual fund & transfer the old exxon basis to the new fund with no recognition of gain. It sounds almost too good to be true, but could make sense, since the government if forcing him to sell.

I have searched & cannot find anything that addresses this. Any ideas?

[OldJack]

It probably does not apply to your client.

You are most likely referring to code §1045 for rollover of gain from sale of small business stock. An election is available for tax-deferred rollover of gain from the sale of qualified small business stock held more than six months. The taxpayer must purchase new qualified small business stock within 60 days. The entire gain is deferred if the new stock costs at least as much as the amount realized from the sale of the old stock. Basis of the new stock is reduced by the amount of gain deferred. Qualified small business stock is C-corp stock with a total gross assets of $50 million or less before and immediately after the issue of stock. Exxon stock would not qualify as small business stock.

[iratax]

He may be thinking of an involuntary conversion. I've never seen it outside of real property.

[Redneck]

I have never had occasion to research this, but I have heard of many politicians, and probably political appointees as well, who placed their holdings into a "blind trust" while they were in office. Perhaps your client could also do this.

[jainen]

>>the government if forcing him to sell<<

Nobody is FORCING him to do anything. They are offering him an opportunity which has certain terms attached. He is perfectly free to decline the opportunity and the terms.

Nevertheless, the current administration has overlooked some amazingly brazen improprieties among its favorites, so I doubt that a bit of extra tax deduction would raise any concerns therein.

UPDATE: George Boutwell commented (in a different forum) that this tax break actually does exist. I admit it was news to me, but I have now read the code section for myself. It would be a conflict of interest to reveal it, however, so I encourage everyone to continue to research this interesting loophole.

[kcjenkins]

Code Sec. 1043. Sale of property to comply with conflict-of- interest requirements

--------------------------------------------------------------------------------

(a) NONRECOGNITION OF GAIN

If an eligible person sells any property pursuant to a certificate of

divestiture, at the election of the taxpayer, gain from such sale

shall be recognized only to the extent that the amount realized on

such sale exceeds the cost (to the extent not previously taken into

account under this subsection) of any permitted property purchased by

the taxpayer during the 60-day period beginning on the date of such

sale.

( DEFINITIONS

For purposes of this section--

(1) ELIGIBLE PERSON

The term "eligible person" means--

(A) an officer or employee of the executive branch, or a

judicial officer, of the Federal Government, but does not

mean a special Government employee as defined in section

202 of title 18, United States Code, and

( any spouse or minor or dependent child whose ownership

of any property is attributable under any statute,

regulation, rule, judicial canon, or executive order

referred to in paragraph (2) to a person referred to in

subparagraph (A).

(2) CERTIFICATE OF DIVESTITURE

The term "certificate of divestiture" means any written

determination--

(A) that states that divestiture of specific property is

reasonably necessary to comply with any Federal conflict of

interest statute, regulation, rule, judicial canon or

executive order (including section 208 of title 18, United

States Code), or requested by a congressional committee as

a condition of confirmation,

( that has been issued by the President or the Director

of the Office of Government Ethics, in case of executive

branch officers or employees, or by the Judicial Conference

of the United States (or its designee), in the case of

judicial officers, and

© that identifies the specific property to be divested.

(3) PERMITTED PROPERTY

The term "permitted property" means any obligation of the United

States or any diversified investment fund approved by

regulations issued by the Office of Government Ethics.

(4) PURCHASE

The taxpayer shall be considered to have purchased any permitted

property if, but for subsection ©, the unadjusted basis of

such property would be its cost within the meaning of section

1012.

(5) SPECIAL RULE FOR TRUSTS

For purposes of this section, the trustee of a trust shall be

treated as an eligible person with respect to property which is

held in the trust if--

(A) any person referred to in paragraph (1)(A) has a

beneficial interest in the principal or income of the

trust, or

( any person referred to in paragraph (1)( has a

beneficial interest in the principal or income of the trust

and such interest is attributable under any statute,

regulation, rule, judicial canon, or executive order

referred to in paragraph (2) to a person referred to in

paragraph (1)(A).

(6) JUDICIAL OFFICER.

The term 'judicial officer' means the Chief Justice of the

United States, the Associate Justices of the Supreme Court, and

the judges of the United States courts of appeals, United States

district courts, including the district courts in Guam, the

Northern Mariana Islands, and the Virgin Islands, Court of

Appeals for the Federal Circuit, Court of International Trade,

Tax Court, Court of Federal Claims, Court of Appeals for

Veterans Claims, United States Court of Appeals for the Armed

Forces, and any court created by Act of Congress, the judges of

which are entitled to hold office during good behavior.

© BASIS ADJUSTMENTS

If gain from the sale of any property is not recognized by reason of

subsection (a), such gain shall be applied to reduce (in the order

acquired) the basis for determining gain or loss of any permitted

property which is purchased by the taxpayer during the 60-day period

described in subsection (a).