How do I file for escrow payments from a previous year's company acquisition

[BillP23]

I was an employee at a company that was acquired in 2020. 

I converted my options and the shares were sold the day the acquisition closed. Shares were immediately paid out at around 98% of the selling price, with 2% of the price held in escrow. Note that it was not that a number of shares were held in escrow and sold later, but rather ~2% of the cost per share for every share.

I wasn't aware of this and filed the income using the 98% number, unaware that I would be receiving escrow payments in the future.

Now, I have two questions:

• What is the flow in TurboTax for filing the 2022 escrow payment?
• What is the flow for amending my 2020 TurboTax return?

Thank you.

[RobertB4444]

To begin with, you only need to do one or the other of these.  If you go back to 2020 and correct the 2020 return to show the value received as 100% of the money (even though 2% was held in escrow) then there would be no need to show the income on your 2022 return.  You would be telling the IRS that you received it two years ago, paying the taxes due and paying any penalties or interest that are incurred.

The other option is to enter the money received on your 2022 return (when the money was actually received by you) as an identical transaction to the one on your 2020 return except with 2% of the money received and a basis of zero (assuming that you used all of the basis in the transaction on your 2020 return, which it sounds like you did).  This would be what I would advise you to do if you were sitting in my office.  It reflects the reality of the situation since you didn't receive the money until 2022.

@BillP23 

[BillP23]

Thank you for the answer. I like your approach, as well. 

I tried to enter the information for 2022 but ran into a complication:

If I enter just the summary information, it wants me to send in statements (since it's non-covered). That wouldn't work (since I don't have statements that reflect the escrow payment aside from the 1099-B itself).

Your recommendation was to fill in the same information that I had in the 2020 return. The issue there:

• Since I am putting the escrow payment as the sales proceeds, it is calculating the "selling price per share" (on the "total proceeds summary" page) as being very low, which makes sense to me; however,
• When I enter the original information on the "enter your purchase (exercise) information" page, I'm entering the original 3921 numbers, which results in the next page showing a massive short-term loss.

Would I want to enter different information in the "enter your purchase (exercise) information" page to indicate the $0 cost basis (as you recommended)? In other words, would I put $0 for the "exercise price per share" and the "market price on date options were exercised"?

Also, TurboTax has marked the sale date of 2020 as an error. If I mark it as 2022 instead, it will only charge me capital gains, which wouldn't be correct. Any thoughts about how to address this?

Thank you for your help.

[DianeW777]

Yes, enter zero in the exercise price per share, and market price on date options were exercised (as long as it comes out to the 2% amount you received in 2022).  You should have a purchase date of 2020 and a sale date of 2022 because capital gain treatment seems appropriate in this situation when you didn't actually have access to the 2% funds until now.

If you enter 2022 as the sales date and purchase date, you will receive ordinary gain treatment on your tax return.

[BillP23]

That makes a ton of sense. Thank you!