Stock options

[clay]

I came across what for me is a unique situation regarding stock options.

The client was awarded 1200 shares of the stock of the company he worked for when it went public in 2004. He claims he paid nothing for the shares. He sold the shares in 2010 and there is a code V income on his W-2.

Usually in these situations there is a minor gain or loss, but what do I use as his cost for the options sold other than the code V income? This will result in a large gain. The code V should be based on the difference between the FMV on the exercise date and the amount paid (but he says he paid nothing).

Has anyone else run across this situation and how did you handle it?

By the way this is a new client.

[Pacun]

If the sale was added to his salary, use whatever was added to his salary as the basis.

[cred65]

There should be a brokers statement on the sale that would include a commission. This would be cost and result in small loss on Sch D.

[Catherine]

There should be a brokers statement on the sale that would include a commission. This would be cost and result in small loss on Sch D.

Since the Code V amount is the _difference_ between FMV and what was paid, it essentially brings basis -up to FMV-. Look up the stock price on the date of exercise at one of the historic stock price sites, and use that. Document your sources (copies of the W-2 with Code V amount, screen shot of historic price, any documentation from employer). It's defensible and I think meets the "reasonable" standards.