<<I appreciate everyones help and comments... but I'm curious, are any of you CPAs? >>Well...if you are interested...you can check out my credentials by clicking on my name. I've been a tax pro for more than 25 years now. I certainly can't tell you about anybody else that answered your question...other than to tell you that they all gave you correct responses.<<I'm really NOT trying to skirt any tax laws here... the last thing I want is the IRS scrutinizing me (in my mind thats like putting a big sign outside your house that says "ATTENTION burglars! expensive contents in this unlocked house!")>>What you are doing is completely legal. Again, "income shifting" is the game. As long as the gift is true (and not some sham as a previous poster noted), then it's perfectly fine, legal, moral, and ethical. Not to mention fun...especially if you are the person receivng the gift.<<Anyway, the only thing I still find difficult to beleive is the part about inheriting the gifter's cost basis. >>I find it hard to believe that bees can fly...but I see it every day. Same here. If you would like to read more about how the basis of property is taxed when gifts are involved, I have a post on that very issue in the Taxes FAQ area. If the property (stock in this example) has appreciated, you'll retain the same basis as the person giving you the stock. But if the stock has DEpreciated, then you would take the gift at the FMV of the shares at the date of the gift.<<For one reason, how would this ever be proved?>>If you sell the shares and Uncle Sammy wants to audit your return, you MUST prove your cost basis in the shares. You must then produce the cost records from the person who GAVE you the shares. In my post in the Taxes FAQ area, I give specific advice for ALL of the information that you'll want from the person who gave you the stock gift...especially proof of their original cost or basis in the shares.<< That is, somebody gives me a stock, then dies, and records are gone.>>If you can't PROVE your basis...you have no basis...and all of the gross sales price would be taxable to you. Remember that the IRS doesn't have to prove anything. YOU have to prove the cost basis of any asset that you sell. << How would the IRS prove/disprove the gifters original cost basis and holding period?>>Hopefully from a copy of the original brokerage statement that was given to you when the stock was given to you.<< I thought what I had read awhile back was along those lines. That its easy for the IRS to determine the market value at the time you received the shares, thus start the cost basis and holding period there. Sort of like incentive stock options.... I dunno.>>I don't know what you read...all I can do is give you the rules.<<As to the comment in the previous post regarding how would the IRS find out anyway.. good point. I mean, if someone gifts stock, its gifted. If the recipient sells it and takes cash... it's pretty tought to prove where that cash went... especially when we're only talking about a few thousand dollars.>>But...when the person who received the stock sells it, the broker will submit a record of that sale to the IRS via Form 1099B. So the IRS will know that you made the sale. So you'll want to put the sale on the tax return. And then you'll have to report the BASIS of that sale on the tax return...under penalty of perjury. The President might get away with perjury...but not many other people can. So using the "no cop - no stop" method of tax planning is really not in your long term best interest. Just my $.02TMF TaxesRoy
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