hpk@vax135.UUCP (Howard Katseff) (07/03/84)
The pamphlet describing AT&T Divestiture Tax information describes two methods for allocating tax basis for the regional BOC shares. One is the IRS Method. The other is the Alternative Method. The pamphlet says that the "IRS has ruled..." to use the IRS method, but AT&T's counsel says "that while the matter is not free from doubt," the Alternative Method should be used. The two methods differ only by 1.7% in the total basis value, but the IRS method requires that 8.5% of the basis be declared as income in 1984 instead of the year in which you sell the stock. Finally, the pamphlet advises that you "should consult a tax advisor on which allocation method to use and on other federal, state and local tax considerations, including whether you must disclose the method you choose." Can anybody advise which method to use? The Alternative Method is simpler and saves me money, but will I get audited? Will IRS audit all of the AT&T shareholders who do this wrong (like the hundreds of thousands of little old ladies who own AT&T stock)? Howard Katseff AT&T Bell Laboratories Holmdel NJ, USA
idje@aluxz.UUCP (EISENBERG) (07/03/84)
The following comments may be useful in deciding which method you use for the stock basis allocation. Using the IRS method has two main results. First, you incur a tax liability. This liability (usually) can be avoided using the dividend/interest exclusion. Second, the cost basis of the new shares is lower using the IRS method as compared with the ATT method. This lower cost basis will come in handy when the stock is sold.
jgw@rabbit.UUCP (Jay G. Wilpon) (07/04/84)
Wouldnt you want a Higher cost basis for tax purposes? That way the profit will be smaller when the stock is sold.
idje@aluxz.UUCP (EISENBERG) (07/05/84)
I unfortunately misstated the affect of the IRS method on the tax basis of the new ATT and ROC shares.The IRS method results in a HIGHER cost basis for the shares as opposed to the alternative method. Of course the higher cost basis lowers the tax liability on sale of the shares.