Harlan Lunsford replied:

- quote -

Thank you, Harlan. And now -- as Paul Harvey would say --
for "the rest of the story":

You'll not be terribly surprised to learn _I am the
grandfather in question. My granddaughter phoned from her
tax preparer's office (somewhere in the vast midwest) on
April 14th, at about 8PM -- my time. The preparer was
inclined to treat the 1099-B as a Capital Gain, with no cost
basis. Of course, in this instance, the granddad-- was
faced with an extra tax bill of about $1,000.

I rode to the rescue by talking with the preparer, and --
citing my 14 years with TaxAide -- encouraged her to treat
the "Proceeds" as a return of principal, after reviewing the
facts much as I did above. She seemed agreeable (and I can
only suppose she did so, since g/d did not call again with
lamentations) ... but I was seeking confirmation that my
reasoning was basically sound.

Thank you for your "all's well" reassurance.

Bill

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an_ordinary_guy_158[at]hotmail.com (Bill) wrote:

- quote -

If you are asking to whom UGMA income is attributed, it
attributed to the minor.

Stu

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Bill wrote:

- quote -

Exactly.

that was easy.

Might need to reconstruct each year's accretion in order to
obtain true value as of the previous 12/31, so that any
added amount would be properly reported on schedule b for
the year of sale.

ChEAr$,
Harlan Lunsford

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Just a request to please help on this particular problem. I
know, it hurt my alleged brain too, trying to work it out --
especially for the year 2004, when there would be a
combination of "return" and "proceeds."

But I hope some kind soul will have the knowledge and take
the time to respond, now that tax season is over and you've
had a couple of days to recover.

Bill

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I would appreciate your take on this situation:

T/P gave granddaughter a zero-coupon bond which would be
worth $10000 at maturity. Gift was purchased 11/30/1988 at
a cost of $2271, through a broker. The bond was a FICO (for
those who don't recall, this was an instrumentality of the
US Gov, created in order to fund the bailout of the S&L
industry) ... and the YTM reported on the trade confirmation
was 9.5%.

The bond was, of course, purchased in the name of the
granddaughter, using her SSN, but naming her father as TTEE.

Broker reported OID-interest value each year on 1099, which
was sent to father as TTEE. Father dutifully submitted the
1099s to paid preparer, but can't remember whether the
amounts were reported on parent's return -- or if preparer
dismissed them as "non-taxable, because minor child's total
income was -0- earned and only a couple of hundred dollars"
(rising annually, but never breaching the former minimum of
$650 or the current minimum of $800).

Parents split in 1998, and daughter-in-law took
granddaughter. Father forwarded all 1099s for the
zero-coupon bonds, as they arrived annually from broker.

As bond approached maturity in late 2005, granddaughter
(then an adult 19+) decided in mid-2004 that funds would be
useful, and requested father (TTEE) sell bond holding --
which was done.

Meanwhile, two broker changes had taken place. Successor
broker, with a record of only 4 or 5 years during which
1099s were issued for OID-interest attributed, simply
reported the proceeds to granddaughter on a 1099B with no
info on cost basis.

Question: How should this be reported on granddaughter's
return? Since annual interest was regularly reported in
granddaughter's name and SSN, wouldn't those values thus
have become additions to the cost basis? If that were the
case, the eventual sale could be a simple return of
principal for the granddaughter.

She has earned income for 2004 of less than $10,000 -- and
the UGMA bond "redemption" is her only unearned income for
the year.

Bill

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