From 2005 to 2021, Randy worked for KY-Tech Inc.  As part of his compensation package, in 2017 KY-Tech Inc. offered Randy the opportunity to purchase up to 1000 shares of KY-Tech Inc. common stock for $200 per share.  A valuation performed in 2017 indicated that KY-Tech Inc. common stock was worth $350 per share.  Randy accepted the offer on June 30, 2017 and paid $200,000 for 1000 shares of KY-Tech Inc. common stock.  The sale of the stock was not part of a qualified employee benefit program.  The stock was subject to the restriction, which was stamped on the face of the stock certificate, that if Randy were to cease working for KY-Tech Inc. before June 30, 2020, Randy would forfeit his rights in the stock and would have to give it back to KY-Tech Inc.  If Randy forfeited the stock, KY-Tech Inc. would return the purchase price Randy paid for the stock.  On June 30, 2020, the KY-Tech Inc. stock was worth $500 per share.

 

In 2019, in need of cash, Randy sold 250 shares of the KY-Tech Inc. stock to his sister, Tess, for $300 per share.  The stock was worth $450 per share at that time.  Since the KY-Tech Inc. stock was subject to a Restriction Stock Agreement which provided, in relevant part, that the stock could not be transferred prior to June 30, 2020, without the express consent of KY-Tech Inc.'s Board of Directors, Randy sought the approval of the Board, which he received.  KY-Tech Inc.'s Board of Directors approved Randy's transfer of 250 shares of KY-Tech Inc. stock to his sister Tess on the condition that Tess would be required to forfeit the stock to KY-Tech Inc. in the event Randy did not remain employed by KY-Tech Inc. through June 29, 2020.

 

Randy sold his remaining 750 shares in Ky-Tech Inc. on December 12, 2022, for $500 per share.  The value of the stock in KY-Tech Inc. had been fluctuating wildly in the last couple of years in an economy afflicted by the COVID pandemic, and Randy wanted to get out.  Since Randy was no longer working at KY-Tech Inc., having left the firm in 2021, Randy did not have any inside knowledge of how the company was doing, which made him uneasy with continuing to hold on to the stock.

 

Randy did not report any of his KY-Tech Inc. stock transactions in any of the relevant years.   As a result, Randy is currently under audit by the IRS for tax years 2017, 2019 and 2020.  

 

1. You are representing Randy in this IRS audit. What position will you take?  Can take?  What is the correct position? As a taxpayer, Randy must report all 1099-B transactions on Schedule D, Capital Gains and Losses. Randy must report all of his stock sales to the IRS, even if he lost money. We could file an amended return and explain what happened. 

 

1. You have also agreed to provide Randy with an answer to the tax consequences of his December 12, 2022, stock sale.

Answer rating: 100% (QA)

Answer In representing Randy during the IRS audit you would likely take the position that Randy should report all of his KYTech Inc stock transactions ... View the full answer