Handling of escrow payout after a private company acquisition shares of which I had through NSO. Does TT handle form 8949 ?

[tk94110]

Long time ago I worked for a privately held company and I got a small number of "NSO" shares. In 2022, this company was acquired by another private company by an all cash deal, I believe. The company managing the acquisition paid out about 90% of the  but kept the rest in an escrow account. They are releasing money from this escrow account little by little. (The last payout will be in 2025.)

For 2023 tax, I used a CPA to file my tax because my situation was a complicated. He filed form 8949 to handle the escrow payout.

I attempted to follow his filing method and tried to fill the form 8949. But it seems TT (Mac Desktop) does not allow me to fill the form 8949 directly.  How do I report this income? If I chose the regular 1099-B entering screen, the questions TT ask me to fill enter does not quite make sense for this situation. Can TT handle the escrow payouts?

[MarilynG1]

Yes, TurboTax can handle the escrow payouts.  When there's an actual "escrow" amount involved in a stock sale the IRS's guidance is that you include that escrowed amount as part of your proceeds in the year of the sale.  Although the 1099-B may make some distinction between "initial proceeds" and "escrowed proceeds", you don't really have two separate transactions, you have one sale with a small amount of time between the receipt of the money.

Report one sale using the first date, combine the two proceeds amounts, and enter the correct basis for your sale.  

Here's detailed info on Sale of Private Company Stock.

Or, if the sale resulted in a gain, and you will have proceeds in the future, you could report it as an 'Installment Sale'.  Here's more info on Reporting Privately Held Stock as an Installment Sale.

@tk94110 

[tk94110]

Thank you, @MarilynG1 !

I wish I knew this 3 years ago. have already reported just the sale proceed in my 2022 tax filing,  the year the sale of the company. (I used the entire cost basis in the 2022 tax filing by the way.) So it is too late to use the method you suggest.

For the tax year 2023, the first year the escrow payout happened, my CPA filed form 8949 to handle this. I was hoping I could do the same for 2024 but I couldn't find a way to make TurboTax generate this form. Could you suggest how I should report the escrow payout using TurboTax?

Thank you in advance.

Thank you. 

[DianeW777]

It will be reported as a sale of investment and TurboTax may or may not generate the 8949. Report the sale as an investment sale using the steps below. If you do not have a 1099-B, then select 'Other'. It will end up on Schedule D, which is where it belongs.

To enter your sale in TurboTax, follow these steps. Click this link for more information. Where do I enter Investment Sales?

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
   • TurboTax Desktop: Search for investment sales and then select the Jump to link. 
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
3. Answer Yes to the question Did you sell any of these investments in 2024? (or Okay! to Time to kickoff your investments!).
   • If you land on  the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.

• @tk94110 

[tk94110]

@DianeW777 , thank you. I tried to follow these steps but answering some of the questions wasn't straight forward. 

The "Sales section title" drop-down list had 7 choices (combinations of short-term/long-term, basis/reported/not-reported/no-1099, and Unknown term basis-not-reported). None of them doesn't exactly match with my situation but I picked "Long-term basis not reported to IRS (noncovered)".

Sales info had 5 choices, Stock (non-employee), Crypto, mutual fund, Bond, and Options. I picked "Stock (non-employee)", although the escrow was result of an employee stock sale, I figured the escrow itself isn't an employee stock.

I entered all other fields then TurboTax put a "Need Review" flag to this item. This is because the "Date sold" on 1099-B has a 2022 date, and this is a 2024 tax report. I believe the date is the date the stock was actually sold.

Have I made correct selections?

Will TurboTax let me finish my filing even though an item has a "Needs Review" flag on? (If not, how can I continue?)

[DianeW777 · Accepted solution]

Stock nonemployee can be used as your selection for the sale. The date of sale must be 2024 because that is when the money was received by you. You can enter January 1st if you like and this should remove the 'Needs Review' flag. The IRS will not accept a date prior to the current tax year and the company should know to put the appropriate date of release on the 1099-B. They likely don't realize this.

Next year with your final payment you will report it the same using a date in 2025.

@tk94110 

[tk94110]

@DianeW777 , I asked the firm which generated (and supposedly reported to IRS) the 1099-B and they were firm that having the 2022 date in the 2024 1099-B is correct. So they won't be making a correction. If I entered a 2024 date to make TurboTax happy, wouldn't that increase the chance of audit since the IRS computer would detect a discrepancy in the date ?

[Mike9241]

you could enter various and classify it as long term,  however, you should be amending 2022 to report the escrow payments received in 2023 and 2024.  your 2022 can not be amended to use the installment method. 

also the tax laws do not allow for installment sale reporting if the stock was a publicly held stock.