MTW wrote:
- quote -

Isn't that called FIFO? (rdfc)

- quote -

As we both know, Mike, the secret of success in accounting is:
Prorate, prorate, and prorate.

Cheer$,
Harlan Lunsford

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Frank S. Duke, Jr. <dukefs[at]one.net> wrote:

- quote -

Hmmm... Wouldn't that be equivalent to the following:

Say that I purchase 10 shares of XYZ stock for $100 bucks
per share. A while later, the price goes up to $150/per. So,
I decide to sell 7 shares at $150 = $1,050 and allocate my
ENTIRE basis of $1,000 against it, thereby resulting in a
taxable gain of only $50 bucks. The remaining 3 shares
thereafter have a zero basis.

In other words, I attempt to allocate basis using a "cost
recovering" methodology.

If you can make that fly, it will be a neat trick! <g> (But,
I have no idea whether such approach might be specifically
permissible in the retirement plan situation you described.)

MTW

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This is to request the group's input on a technique for
receiving a retirement distribution of employer stock from a
401(a) profit sharing trust. The stock has a company cost
basis of less than 20% of the $100 FMV and many employees
have 10,000 to 50,000 shares at retirement.

The employee takes a lump sum distribution of all the shares
and within 60 days of distribution, rolls a number of shares
equal to or greater than the cost basis into an IRA. The
rollover offsets the taxable basis and there is no current
tax due. From a return standpoint, it is as simple as
entering the 1099R and specifying that the rollover was the
same as the cost basis. If it was larger and you put that
number in, most software will tell you its an error. The
shares remaining outside the IRA have zero basis. If the
value at sale is higher than the distribution value the
extra appreciation is short term for one year and the
distribution value is long term. After one year, the entire
sale price is LTCG.

I have searched in vain for any court cases, regulations,
rulings, etc. that clearly show a reason why you can't do
this. Everyone I have spoken to, including several
nationally known experts say it is an aggressive strategy
but they can find nothing wrong with it. Most have done it
for clients. Major brokerage houses are scared to death of
it. I know dozens of people who have done it and many are
more than 3 years past the filing of their returns.

The only support I can find is an old PLR: LTR 8538062

Section 402 -- Trust Beneficiary's Tax

Summary

SERVICE SPECIFIES TAX TREATMENT OF ROLLOVER OF EMPLOYER STOCK.

A company plan allows participants to have their employer
contributions placed in a "bond" fund or a "stock" fund, or
both. Vested participants who leave the company receive
single distributions from the plan. Amounts held in the
stock fund are distributed in the form of company stock
unless the participant wants cash. Participants are also
eligible to roll over their accounts into IRAs. The Service
has ruled that if a participant elects to roll over shares
of the company stock, the total taxable amount of the
distribution will be reduced by an amount equal to the fair
market value of the stock. The Service also held that the
term "employee contributions" in section 402(a)(5)(B) would
not include net unrealized appreciation on the stock. June
25, 1985"

Does anyone know of anything more recent than this that
either clearly supports of refutes this technique?

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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