Kevin and Diane have been your clients for the past three years. At your recent tax meeting with them, they disclosed that they recently sold stock that they received as a gift from Diane’s father about three years ago. They have a Form 1099-B in their name that shows the sale of the stock, which came to $70,000. Diane’s father purchased the stock thirty years ago for $10,000, and it was worth $50,000 the day he gave it as a gift.

They are under the impression that they don’t have to report this sale on their tax return because they received the stock as a gift.

Also, they give you their Form 1099-DIV for the year, which shows that this same stock had a cash dividend of $3,798. They said that they received it in four equal checks from the company over the course of the year. The form also states that the dividend is a qualified dividend.

Task

In a research memo, explain to Kevin and Diane how to determine the taxability of both their stock sale and their cash dividend for the year.

You must cite all relevant tax code to determine what items would be included or excluded from gross income. Prepare your response in a tax memo format.

Answer rating: 100% (QA)

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