Tax Answers

April 14, 1994

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through Friday.

Q: I had a 401(k) plan with my employer in which I made investments in various areas, including company stock. At the termination of my employment, I paid income tax on the fair market value of the company stock. What is my basis of the company stock I now hold? Is it the cost contribution I've made in all the various investments or the fair market value of the company stock determination? If it is the former, how do I report the acquisition costs and dates involved?

A: The basis of the company stock is the fair market value on the date it was distributed to you, no matter whether you retired or left the company and withdrew the 401(k) assets. It should be the same value used to determine the amount of tax you paid when you received the assets from the 401(k). Your holding period also starts on the date of distribution of the stock from the 401(k) trustee. The dates of acquisition by the trustee and any associated costs, your contribution to the plan, as well as the tax you paid as a result on the distribution have no bearing on your basis or the start of your holding period.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary. Consult with a tax adviser for specific advice.

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