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We had two same-day exercise/sales of NQ stock options in 2000. They are clearly delineated (lumped together) on the W-2. So what was on Schedule D? He showed zero gain from one sale by showing our after-tax profit as both basis and sale price, and nothing at all about the other sale. Since the missing item was in the high six figures, you'd think the IRS might have taken notice. But I haven't heard anything.

It sounds like a human being probably looked at it and saw what was going on. In any case, don't throw anything away for another 3 years on that one.

In case it isn't obvious what Phil is referring to here, if your unreported taxable capital gain were in six figures, you would be looking at substantial understatement of income. The statute of limitations for the IRS to pursue substantial understatement is six years, not the usual three. So, while Phil may be right that a human has already passed on this, if he's wrong, the IRS could still come calling. You don't want to find yourself in the situation where you can't document that the option exercise produced no capital gain.

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