Category: Accounting Periods & Methods;
Miscellaneous
Subject: Accounting for Sale of Stock
Title: Specific Identification of Shares Sold
IRC Sections: 1012
Filename: 1348.html
Date Produced: 12/94 Copyright 1998, The Tax Resource Group. All rights reserved.
Telephone 800-578-3498. Internet: www.taxresourcegroup.com Issue
If a taxpayer sells stock and the taxpayer owns various lots of
the same stock each lot having different cost bases, can the taxpayer
specifically identify the lot from which the shares were sold
thereby controlling the basis of the shares sold? Answer
Yes, the taxpayer can specifically identify the shares sold. Discussion
Regulation Section 1.1012-1(c) provides that the cost basis of
stock sold in cases in which the taxpayer owns multiple lots of
the same stock is FIFO unless the taxpayer can adequately identify
the lot from which the shares are sold. In that case, the taxpayer
uses the basis of the shares so identified for purposes of determining
gain or loss from the stock sale. The regulations go on to specify what constitutes adequate
identification for shares held by a broker and shares held by
the administrator of an estate. Since none of those rules apply
to this situation, we are left with the open question of what
constitutes adequate identification in this case. The following common sense suggestions may be helpful. -Provide in the contract of sale that shares from a certain
lot are being sold. -Make sure there is some means of distinguishing one share
of stock from another. If the shares are numbered, then there
should be no problem. If not, mark them somehow to distinguish
between the various lots. -Have someone witness the actual physical transfer of the
shares. Make sure that the witness is able to observe the seller's
selection of the appropriate shares from the various stock certificates
held by the seller. Preferably the witness should be a non-stockholder
and unrelated to any of the parties.
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