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How do I report capital gains against a 1099-B issued for a transaction in the prior year?

This a rather complicated tax question: The company I work for was acquired at the end of 2007 in an all-for-cash transaction. The sale resulted in a disqualifying disposition of my vested incentive stock options. My company therefore included the income for this disposition on my 2007 W-2, and I will pay taxes on the gain for the tax year 2007. So far, so good. Here is where it gets complicated. The transfer agent who handled the transaction did not pay the proceeds from the 2007 transaction until 2008. As a result, I will receive a 1099-B in 2009 for the proceeds received in 2008. Given that I will have already paid income taxes on the disqualifying disposition for the 2007 tax year, do I simply report a capital gain of $0 against the 1099-B when I figure out my 2008 taxes in 2009? Russ B - I think you have grasped it. The transaction occurred in 2007, but the shares were not redeemed by the transfer agent until 2008. To answer your questions: I exercised the options at the time of the acquisition in 2007, and then redeemed the resulting shares for cash in 2008 (through the transfer agent). Does this provide sufficient clarification? Since the acquisition was all-for-cash, there is no difference between the exercise price and the price at which the shares were sold. So does that mean that I essentially pay the tax as income tax in 2007 (as specified on my W-2), but then my cost basis in 2008 for redemption of the shares is now the same as the selling price, so the capital gain for 2008 is $0?

Public Comments

1. What were the selling price and exercise date FMV of the shares? There are different possibilties. 1. If the selling price is below the amount you paid for the shares. Your loss on this sale is reported as a capital loss. I don't think this is your case since your company reported income on your W-2. 2. If the selling price is above the amount you paid for the shares but not higher than the value of the shares as of the date you exercised the option, your gain on the sale is reported as compensation income (W-2). This may be your case and you just need to report a zero capital gain on Schedule D. 3. If the selling price is higher than the value of the shares as of the date you exercised the option, you report two different items. The "bargain element" when you exercised the shares (difference between the value of the shares as of exercise date and the amount you paid) is reported as compensation income. Any additional gain is reported as capital gain (either short term or long term). This may be your case too.
2. I am not sure that I understand your question fully. However, if I do understand it correctly then you have two different tax events (my understanding depends on your understanding and the description of the events). From what you have said it would seem that the original company was bought in 2007 and then they completed the stock transactions in 2008. It doesn't matter when you receive the actual money...if you sold a stock on Dec. 31st it goes on a 1099 for 2007...even if you didn't recieve the money until 2008. I am assuming that the company handling this knows what they are doing. So with those assumptions...here is what I think happened. When you have a stock incentive program...there are still two different transactions...but, they are usually rolled into one. The discount has to accounted for...in this case the company you worked for reported this as income. Then the new company finished the transaction in the next year. Meaning you actually sold your stocks in 2008. However, the good news is that the amount of income they added to your W2 becomes part of the basis for your stock. From there it is a simple matter to determine if you have a gain in 2008...it depends on cost and the selling price. As I said before I am not sure about what your asking...BUT, I can assure you that you will not be taxed on the same income twice (well at the federal level). What confuses me most is that you never say if you actually exercised this option (I assume you did). What makes me question my guess is that I do not use terms like "all-for-cash"...that doesn't tell me anything. Did they buy the stock the company held for cash...or several other options? Hope this helps.