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.
· 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. |
