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I have a new one to me, and need to be sure I have the terminology correct before I start asking for more information from the client.

My client was given stock in the privately owned family corporation as a child and has now sold it back to the company. She is going to have to find out the basis so we can report the transaction.

I suspect this was treasury stock from the corporation but may have been stock owned by the parents and if so, probably was treasury stock when they acquired it. I've been doing research, but am not coming up with the term for the basis of treasury stock. Would this be par value?

Thanks.

Rose

Next I need to look into installment sales for the same transaction.
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No. of Recommendations: 1
My client was given stock in the privately owned family corporation as a child and has now sold it back to the company. She is going to have to find out the basis so we can report the transaction.

I suspect this was treasury stock from the corporation but may have been stock owned by the parents and if so, probably was treasury stock when they acquired it. I've been doing research, but am not coming up with the term for the basis of treasury stock. Would this be par value?


I don't know that it matter if it was once treasury stock. In any case, her basis is the basis in the hands of the donor - her parents, grandparents, or whoever. And if they bought treasury stock to give to her, then that amount would be the basis. Maybe, it would be par value, if the stock was originally issued to the parents at a price equal to par value. But par value isn't necessarily the issue price either, it may be a tiny fraction of the issue price.

Next I need to look into installment sales for the same transaction.

Installment sale treatment is available. But while you're at it, see if you need to include a statement for waiver of family attribution, to insure that the client qualifies for capital gain treatment, and that the client terminating all other involvement with the corporation. Otherwise, the redemption may be taxable as a dividend. (Which, if the basis is very low, may be approximately the same result.)

And that doesn't work if the stock was acquired by gift in the last 10 years. The client also must agree that she will not reacquire new shares in the next 10 years.

Bill
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