reconcile 1099B and W2 reporting of stock option exercise

[Tax2019Pay]

My company sends me a W2 which showed in Box 1 only the non-statutory stock option gain of $5000 and in Box 12a showing "V" referring to "non-statutory stock option exercise".

Basically I exercised the stock option grant (same grant - same strike price) 10 times during 2021, each time with different number of shares and different sale proceeds.  And I sold immediately upon exercise so there is no further sale gain beyond exercising the stock option.  I received a 1099B with both a summary of total proceed and total cost base, as well as detailed listing of each of the 10 exercises.  They were reported as short term covered without the need for adjustment on 1099B. The total proceed, e.g., $15000, the cost base $10002 - the $2 is the brokerage firm total processing fees for the stock option exercise.

I asked this question on this board, some experts said that I can summarize the 10 exercises into 1 consolidated proceed and one consolidated cost base, and add the W-2 amount to the 1099B cost base, without having to list all 10 exercises one by one.  However, some suggested that I need to send in 1099B or a list of all 10 exercises to IRS.  I called the brokerage firm and was told that they have already sent the 1099B to IRS - exactly the same one as I have received.  Why do I need to send it again to IRS?

Other experts suggested that I import 1099B from the brokerage firm so all 10 exercises are entered individually.  However, how do I adjust the 1099B cost base for each of the 10 exercises?  The W2 only shows the total gain from the option exercises but did not break down one by one.  And exercise different number of shares each of 10 times.  Do I just average it? Wouldn't that be more confusing to the IRS?

What is the best way to adjust the cost base using information from W2 to be super clear to the IRS?

Thanks for experts' help ahead of time.

[JillS56]

The reason it was suggested that you send the 1099B with the return is that it would speed up the processing of your return.   Without the 1099B attached it could slow down processing.

My recommendation on the entering of your 1099B transactions is that you consolidate the transactions into one, then add the $5,000 to your basis.    If you try to break everything down more or average to spread the cost basis over all 10 transactions I think you are sending a red flag.   Whether you attach the 1099B or not, the IRS does have access to the 1099B.   When someone at the IRS sits down to review your file, they may not be able to come up with your calculations and when it doesn't match what the 1099B shows, it will cause you all kinds of grief and delay.   

Make it simple for the IRS to figure out.  

[Tax2019Pay]

Thanks.  Make sense.  A few follow up questions:

Q1: So it is not a good idea to download the 1099B from brokerage firm into Turbo Tax since that prevents me from summarizing, correct?

Q2: Does Turbo Tax allows me to attach a 1099B or do I have to send it in by mail after eFile?

Q3: When I add the W-2 amount to the cost base of 1099B, is it easy for the IRS to figure out by adding the W2 number and 1099B number?  Is there anywhere in Turbo Tax I can explain this addition of 2 numbers for adjustment?  This is where I got hang up, I do not know if everyone at IRS reviewing the tax return will understand this.  Also will the initial electronic processing identifies this as a red flag.

Q4:  It was also suggested by nearly all experts for ordinary stock transaction to summarize all per category, e.g. those with short term covered, without listing every transaction out, and there is no need to send in 1099B for those.  Is this also your recommendation?

[RobertB4444]

A1: You should not import the 1099-B if you are going to summarize the transactions.

A2: After you enter the summary totals then you will be prompted with the option to attach the 1099-B.  You can attach it then.

A3: The addition to the cost basis is on your W2 so it is traceable for the IRS.  This will definitely not hold up your initial electronic filing.  It may lead to a delay while the IRS figures out what you've done.  But what you're doing is exactly what the IRS instructs you to do.

A4: If you are entering all the transactions and they are all covered transactions then the IRS doesn't need the 1099-B.  I would still send it - the attachment is easy and it's right there to keep them from having to match documents.

[Tax2019Pay]

Hi RobertB4444: Thank you so much.  Just two follow-up questions"

Question 1:

Here is what TurboTax said:" Should I summarize my sales? If you have sales identified on your statement as Box A or Box D sales, and they don't include any adjustments to the gain/loss (e.g. a Disallowed Wash Sale amount), then you should simply enter a summary for these sales. You'll only need to enter the total sales proceeds, total cost basis, and sales category."

If I add W-2 Box 1 amount (for the NQ stock option exercise) to the 1099B Cost Base, is it considered as "adjustment"?

Question 2:

You mentioned in TurboTax, I can attach 1099B form.  Where is the option available?  I do not see it.  I always thought that TurboTax does not allow any attachment.

Thanks.

[RobertB4444]

1.  It is an adjustment, but it is an adjustment that has been reported to the IRS on your W2.  

2. After you have entered all of the summary totals you will be given instructions on attaching a pdf of your 1099-B to the return.

[Tax2019Pay]

For Turbo Tax Premier, I still did not find anywhere it leads me to attach 1099B pdf file.  Can you provide a bit more instructional guidance? Thank you.

[ThomasM125]

You should mail the tax return in and staple a copy of the form 1099-B pages that show the trades to the tax return.

@Tax2019Pay

[Tax2019Pay]

So that is where my confusion is.

In TurboTax, it states that if one has only short term covered sales, one can summarize without the need to send in 1099B, and the brokerage firm has already confirmed that the 1099B  was sent to IRS.

If the IRS understands that you need to add the W2 box 1 amount corresponding to this NQ stock option exercise to the 1099B cost base,  Why does one need to add/attach 1099B which IRS has already received?  

My question is that is it really a must to mail in 1099B again?

[Tax2019Pay]

If you send in one 1099B, should you also send all the other 1099Bs?

When you say send 1099B return, do you mean that I should file by paper instead of efile?

[AmyC]

You always want to e-file when possible. The program will tell you to print a form 8453 and you can attach a copy of your 1099-B forms. I recommend a copy of all 1099-Bs so that it is easier to verify and process. The IRS will sometimes ask for other forms as well. This helps them to know you sent it, verify you and the forms all together. The IRS does not normally look at the w2, 1099, etc for 2-3 years after filing and by computer, This allows a human to look and move on.

[Tax2019Pay]

I wonder why TurboTax does not make this situation easier by creating 3 boxes, one for 1099B cost base, one for W-2 Box 12a amount "V" for non-qualified stock option exercise gain, and one for the overall cost base (i.e., 1099B cost base + W-2 Box 12a amount) so that it is clear for the IRS.  

Are you recommending me to send Form 8453 along with the 1099B and check the following box on Form 8453?

"Form 8949, Sales and Other Dispositions of Capital Assets (or a statement with the same information), if you elect not to report your transactions electronically on Form 8949"?

Should I also write, please refer to company X W2 Box 12a "V" NQ stock option exercise amount, this amounts is added to the cost base shown in 1099B?

[AmyC]

Not being able to see your return and how things are handled, I can't say what you need but the program can and will mark it all for you. The program will let you know if you need to mail the form 8453 in along with which forms to attach and mailing instructions. If you need to mail 1099-B, then I would send them all.

[Tax2019Pay]

Thank you AmyC so much.  I ran through Turbo Tax.

I exercised the stock options 10 times from the same grant lot on 10 different dates, and sold the shares immediately for cash gain.  The brokerage firm sent the 1099B to IRS, which not only showed the summary of total proceeds and total cost bases, but also individual sale - all 10 one by one.  The company reported the gain as income on W2 Box 1 and also Box 12a - "V" for nonstatutory stock option.  Since the W2 listed only 1 total gain (did not break down by 10 exercises), and it was listed on 1099B as short term covered without adjustment, I thought that the best way is to summarize using total proceed and total cost base when entering 1099B information instead of breaking down to 10 entries.  I added the W2 Box 12a amount to the 1099B cost base.  This is how it was instructed: https://turbotax.intuit.com/tax-tips/investments-and-taxes/non-qualified-stock-options/L8zsxRi7B.  

The turbox indicted that there is no need to send 1099B or Form 8453 if I efile - I will efile.

When I look at the pdf of the draft final submission in Turbotax, it just showed the total proceed and total base (1099B base + W2 Box 12a amount).  How will the IRS know that I have correctly added the W2 Box 12a amount to the 1099B base?  When they review my efile, will they be able to figure it out quickly.  If not, what is the best way to make it clear for IRS to help them?

[AmyC]

The IRS computers go through and calculate those things over time. The computers should not have a problem. Yours sounds straightforward. If they do have a problem, they will send you a letter. You would just return the letter with your own explaining it.

It would be good to make this note now, while fresh, and add it in with your investment notebook. If you don't have one, I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. You must keep tax records  from the time you purchase until sold/ loss used plus 3 years. It is very easy to lose track of disallowed losses / carryforwards/ basis.

Then you have no concerns and can file with peace!