Employee Stock Purchase Program

[LCBurdge]

I bought 1000 shares on the ESPP, but a year later the company did a reverse split, so my share went down to 800.  I sold the shares and now I am trying to enter it into Turbo Tax.  What do I use for my numbers, since it is asking me for the grant date and purchase dates.  That is the 1000 shares which I did not have at the time I sold because of the reverse split.  Need help.

[GeorgeM777]

You will enter the number of shares you owned after the reverse stock split.  IRS guidance on a typical stock split, for example a 2 for 1 stock split, indicates that a taxpayer must reallocate their basis between the original shares and the shares newly acquired in the stock split.  The IRS also has stated that in a stock split a taxpayer's overall basis doesn't change as a result of a stock split, but their per share basis changes.  Thus, the taxpayer needs to adjust their basis per share of the stock.

We can apply the same type of analysis to your situation.  Thus, when you enter your ESPP information, use the actual number of shares sold (the 800 shares) rather than the 1,000 shares, the amount you originally purchased.  Adjust your basis (i.e. cost) accordingly for the 800 shares.  To do this, just take the total purchase price for the 1,000 shares, and divide that total price by the 800 shares (rather than the 1,000 shares) to get your adjusted basis for the 800 shares.  The sale proceeds amount for the 800 shares does not require any adjustment because it is the amount you received.  When your adjusted basis and the sale proceed amounts have been entered, TurboTax will calculate your loss or gain.  While you will need to make an adjustment to your basis, you do not need to make any adjustments regarding when you purchased the stock and when you sold it.  In other words, enter the actual date(s) of purchase and the actual date(s) of sale.  You will not need to enter any information about when the reverse stock split occurred.  Keep whatever records you have regarding your ESPP purchase, reverse stock split, and subsequent sale. 

[LCBurdge]

Thanks for the help.  One last question, Turbo tax is asking me for the amount of compensation income for this transaction???? 

[HelenC12]

Generally, the stock sale is included as income (compensation) 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 that information on your tax return.  

For additional information, see the TurboTax article: Non-Qualified Stock Options.