Question on selling stock

[Tadpole]

I have some Chevron stock. It started out as an inheritance of Texaco stock 25 years ago, so I got it for free. In that time there has been a purchase of Texaco by Chevron making an entity Chevron-Texaco and finally a single company Chevron. I'm not sure the Chevron-Texaco matters since the stock was repriced at the time of merger and new shares issued. At first the dividends were sent to me but I changed this about 10 years ago to reinvest them but paid yearly tax on the dividend. They did not withhold the tax, I paid it at tax return time. During this entire period there have been several stock splits. I have paper certificates for the holdings at the time of the split but not for the new split shares or for the dividend purchases. They have these in their records (held at Mellon?). I am giving all this information because I don't know if it is or is not needed to answer my questions which are:

If I sell half of the holdings in Chevron, is there any way I can earmark this half as only from the capital gains to take maximum advantage of the low tax rate?

Who would have a record of how much of the stock is taxable and how much has already been taxed? Is Chevron or Mellon required to have a record going back this far when the records originally belonged to Texaco? If I need to do this myself, what records do I need to document it?

 

[cute fuzzy bunny]

I'll take a stab, and it'll probably be wrong, but that'll spur someone else who knows the right answer to jump in and prove the wrongness

Your basis should be the price at the time of your inheritance. Past that, you have an accountants nightmare. You'll need to account for all the transitions, splits, reinvestments, any taxes paid, etc.

Nobody 'accounts' for this, but the IRS may ask you to lay out the paperwork you did to figure out your cost basis when they audit you. It better be good.

I imagine someone somewhere has a piece of software that'll ask you lots of questions and give you an audit worthy answer...

 

[AltaRed]

Chevron Investor Relations should be able to provide all the information from the date of inheritance (actual transfer date on estate settlement). The OP needs to establish that date first from tax (or court) records and then be nice to someone in Chevron IR. It could take awhile to sort all this out.

I would doubt the transfer agent would be very helpful except for potentially the reinvested dividends (but then the OP should have that data anyway). Keeping track of cost basis is the obligation of the stock owner.

 

[lswswein]

Investor relation is the right place to start. After that you have to start cracking on a really long speadsheet. I haven't heard of any specific software which lets you enter stuff and prints out your costbasis for all your shares, though some brokerages might do it for you. I know of CPA's / tax accountants who build big spreadsheets to calculate tax bais but all of them do it for specific cases. The one a lot of them talk about is AT&T stock for the early 80's. Supposed to be 100's of lines long with all the splits and mergers. You know the default is just use the initial cost as the tax basis for all of shares right - you pay lot more in taxes but takes out the hassle.(This makes the assumption that the stock went up which is the case in most cases) (Worst case you use the initial cost basis for the starting shares and 0 for the rest. I Know this is highly inefficient but if you don't have too many shares and don't care about the hassle - this ensures that you overpay taxes but IRS will not come after you.)

-h

 

[grumpy]

Or you could just make up a number. Unless there is a WHOLE lot of $ involved the IRS is not likely to waste the time it would take you or them to find all of the necessary information. For example, find the highest and lowest price of the shares during the time you owned (most) of them and split the difference. Treat all of the shares as if you bought them at that price and calculate the gain accordingly. This gives a plausible result that is unlikely to trigger any IRS scrutiny. Obviously this isn't the "correct" answer but what the heck, life is too short to spend so much time doing the IRS accounting for them.


Grumpy

 

[cute fuzzy bunny]

I'm not sure thats a good idea. During a routine inquiry, the IRS may ask you to show a worksheet. If you tell them you "just made it up" and tell them to do their own accounting, I suspect you'd find yourself in exceptionally deep doody.

Oh hey...look at this!
Stock Tax Basis, Stock Cost Basis, Schedule D, Capital Gains

Never used it, but it looks promising...

 

[grumpy]

I'm not sure thats a good idea. During a routine inquiry, the IRS may ask you to show a worksheet. If you tell them you "just made it up" and tell them to do their own accounting, I suspect you'd find yourself in exceptionally deep doody.

CFB,

If the OP is a wage slave with only W-2 income and no unusual deductions, the chance of a "routine inquiry" asking for that kind of supporting documentation is just too small to worry about. Even if it did happen, the worst outcome would be that the OP would pay the cap gain calculated on a basis as of the date of inheritance. If I were him I'd take that chance.

Grumpy

 

[ziggy29]

Well, your "basis" in the holdings is the value of the shares at the time of death. (This "step up in basis" is a huge tax strategy for people who may be thinking about selling appreciated holdings before passing -- don't do it!)

Your cost basis per share would be the your original cost basis divided by the number of shares you currently own.

Here's a simple-case example assuming no previous sales, no subsequent purchases and no dividend reinvestment: You inherit 100 shares of XYZ worth $5,000 at the time the previous owner died (and left them to you). Your cost basis for the holding is $5,000.

Assuming no dividend reinvestment or additional purchases to complicate things, let's say years later XYZ merges with ABC and becomes ABC-XYZ. In the terms of the deal, XYZ shareholders get 1.5 shares of ABC-XYZ stock for each share of XYZ they owned.

Now you have 150 shares of ABC-XYZ instead of 100 of XYZ. Your cost basis is still $5,000 on these shares. Your cost basis *per share* of ABC-XYZ is $33.33 ($5000/150).

You later sell 50 shares of ABC-XYZ for $60 per share (ignoring commissions for simplicity).

You sold $3,000 worth of stock for which your cost basis was $1666.67 ($33.33 times 50 sold shares). The difference, $1333.33, is taxable as a capital gain. You now have 100 shares left with a remaining cost basis of $3,333.33.

This is a simplest-case analysis. If you sold shares previously or added to the position through subsequent purchases or dividend reinvestment, it gets more complicated very quickly. This is why I'm not a fan of dividend reinvestment in taxable accounts -- just too much hassle. I save the cash until I have enough to establish a new position.

In your case, you would need to add the dividends to your cost basis after you started reinvesting them. Then you'd have to choose a distribution method (such as FIFO) and stick with it as long as you have this holding. And different shares would have a different cost basis. In my example above, the first 150 shares of the merged company have a cost basis of $33.33 each, and the shares purchased with reinvested dividends would have a cost basis of whatever the purchase price was at the time.

 

[cute fuzzy bunny]

Agreed that the odds of an IRS are small.

I think the worst outcome is a little worse than just paying the gain.

I guess the OP has to decide if "making it up" and taking a chance on being audited and getting hit with penalties and interest on top of the tax are worth a avoiding a couple of hours of work.

 

[SecondCor521]

If I sell half of the holdings in Chevron, is there any way I can earmark this half as only from the capital gains to take maximum advantage of the low tax rate?

Since you own the stock, you may, if you choose, specifically identify the shares that you are selling. To do so, just identify in writing to whomever is holding those shares when you sell them: "I'd like to sell 100 shares of XYZ Corp, specifically the shares I purchased on 1/15/1988." Then, when you do your taxes, you use the bases of those particular shares in calculating your capital gain.

However, based on the horrendous history you have to deal with and your lack of recordkeeping, I think you're out of luck in being able to do this unless you want to reconstruct all of your basis information now.

2Cor521

 

[kcowan]

CFB,

If the OP is a wage slave with only W-2 income and no unusual deductions, the chance of a "routine inquiry" asking for that kind of supporting documentation is just too small to worry about. Even if it did happen, the worst outcome would be that the OP would pay the cap gain calculated on a basis as of the date of inheritance. If I were him I'd take that chance.

Grumpy

I would ask Chevron for what they think and use that. If the IRS asks (unlikely), I would claim I am a philosopher and relied on the beancounters at Chevron and send them whatever I got from them. Mistakes are forgiven. Fraud never is.

 

[Tadpole]

Thank you all for your help. It really isn't all that much of my holdings. I wanted to get some of it out before the 15% rate goes away.

 

[BigBob]

Give it away

I have a similar issue, with some stock that I purchased originally in the 70's and added to it in the 90's.
What I have decided to do (eventually) is to donate it to my church. Instead of me giving my hard-earned dollars, I will not sell the stock, but donate it. I will get the total value of the stock when I donate it to be a charitable donation. Then, I don't need to do ANY figuring - much simpler to me!
Just an idea that you might pursue if you are interested.