Compensation Element for ESOP

[lilly54]

I have received a 1099-B for shares sold as part of an acquisition. These shares were originally bought as part of an ESOP which spun off other companies which spun off other companies. Luckily then have a nifty cost basis calculator  from the company so I know the cost basis. I've entered that. I have checked that it came from an ESOP. It's asking me for a "Amount of Compensation from this sale." What is this and where do I find this?

[HelenC12]

Generally, the stock sale is included as income on your W-2 i.e. compensation. 

If the stock sale is included on your W-2, to avoid double taxation:

• You will need to change the stock basis on the date of the sale, to the price on the date of sale.  
• The result is zero gain or a minor loss due to brokers commission/fees.  
• The IRS will expect to see 1099-B information on your tax return.  

To enter your 1099-B form, see Where do I enter a 1099-B?

[lilly54]

My stock is not included in my W2. I have no W2 from the original corporation, who I haven't worked for in years. As I said in the original posting, this is income reported to me on a 1099-B from the merger of a spinoff of a spinoff of the original company I worked for years ago (first job) which has now been bought and is cashing out their stock.

So, once again, what is the compensation element?

[ThomasM125]

The compensation element is the value of the stock when you took ownership of it less what you paid for it, if anything. So, if it was given to you, it would be the fair market value when you received it. If you purchased it at a discount, it would be the difference between what you paid and what the stock was worth.

[lilly54]

I am still unclear what to put here. How does this differ from the cost basis?

My original shares were bought at various times as part of an employee purchase plan and I've indicated various in TurboTax. I have sorted the cost basis which takes into account the discounts provided and split across multiple spinoffs and times. The immediate sale is a spinoff of a spinoff which was bought for cash for all stock. So do I need to put anything as the Compensation Element?

[ThomasM125]

If you didn't purchase the stocks at a discount, then you wouldn't have a compensation element. However, most employee stock purchase plans offer a discount as an incentive for employees to invest, otherwise they could just purchase the shares on the open market for the same price.

[lilly54]

I found the help that exactly explains this and am a bit more enlightened that I didn't pay taxes on the original employee discount and now I need to do so. I certainly am under Situation 3,Situation 3: Qualifying disposition with stock price increase between offering date and purchase date (https://turbotax.intuit.com/tax-tips/investments-and-taxes/empl[product key removed]ase-plans/L8NgMF...). I have read the example but am unclear what to do in this case. There is a discount but it's not a single discount. These are old stocks from multiple employee purchase plans. I worked for company A and Company B and had stock purchase plans from both of them. I haven't worked for either company for years (there is no relevant new W2).  Company C bought Company B. Company A then bought Company C. Company A spunoff a number of companies, one of which spunoff another company which subsequently was bought for cash. Then there are the stock splits along the way. Thankfully the employee alumni association has a calculator for my cost basis that has all that cooked in.  I have entered my cost basis.

The two original stock plans both had 15% discounts. Do I use that or some dilutions for all the buyouts? If I use the 15% it only amounts to $7 income since this isn't a big sale.  So do I put $7 there?

Thanks for your patience in explaining this.

[GeorgeM777]

Yes, you could do that to keep things simple and given that the amount at issue is not significant.  However, with stock splits, generally you adjust everything back in time as if the stock split preceded the purchase of the stock through the ESPP.  To re-calculate everything may involve a lot more work for what it is worth, thus, it is understandable if you decide to use $7 as your compensation income.  

@lilly54