Help with non-qual stock option...I think I am screwed

I need some help.
I received an under-payment notice from the IRS for 2005 yesterday. The issue was my company stock option which I took on 11/07/05. The taxes on the gain were taken out when
exersized, and the realized gain appeared on my w-2 under box 12a unedr code "v". Let's say the gain was $5,000 on a stock price of $60 with an option price of $30. The problem is I have discovered that a 1099-B was issued by my company indicating the FULL amount of the deal, let's say $15,000. Now the IRS wants me to pay taxes on the $15,000 - when my only gain was $5,000...and of that $5,000, the taxes were already taken out. Note, these are classified as non-qualified stock options, not ISO's. Thoughts? Am I screwed?
Thanks,
Steve The Bluesman
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snipped-for-privacy@netscape.net writes:

And the gain darn well better have been included in box 1 of your W-2 as well, or else your employer screwed up.

As the company was required by law to do.

That's because you didn't do your tax return right. You needed to report the sale on Schedule D. Gross proceeds are $15000 and basis is the exercise price plus the income shown on your W-2 (which means the gain on the sale is virtually zero). By not reporting the sale, the IRS assumes zero basis (after all, they have no other data to go on) and a $15000 gain.

No. But you screwed up and need to amend your return to report the sale properly.
-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us
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Not quite sure of exactly what you have here.
But, on the surface it seems like something I've seen quite frequently. When you exercised & purchased the stock, the amount was added to your W2 wages and possibly an additional amount for tax withheld. This amount becomes your basis for when you sell the stock. In many cases, the stock is sold immediately. The sale of the stock is what generated the 1099B reporting. So, there is likely only a small gain or loss on the stock transaction. The IRS is most likely auto generating the notice based on the 1099B You should probably consult your CPA/tax advisor to respond to the IRS notice and to amend your tax returns (Fed & state) to correctly present the transaction. ___________________________________ <<< Benjamin Yazersky, CPA [NJ & NY] >>> -----> real address on hobokeni or hobokenx <-----
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snipped-for-privacy@netscape.net wrote:

You failed to file a Schedule D showing your basis in the stock when you sold it. With no information, the IRS assumes a basis of zero and tax the entire gain. Your basis was what you paid for it ($30 per share in your example above) plus the $5000 in gain reported on your W2. If you had to pay sales charges, the result is ususally a small loss on the sale. Your only problem was in having your taxes done by someone who didn't know what they were doing. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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