When I sell the stock I bought through an "employee stock purchase plan", how do I report the gain?

Question

When my friend worked at Walmart, he had money taken out of his paycheck to buy company stock.  The company matched 15% of his purchase.  Now, he's selling all the stock.  The basis in the stock he paid for is clear, but does he use zero basis for the stock the company purchased for him? or does he have to report the fair market value of the stock when purchased as ordinary income and then use that same value as his basis?  I've heard both answers and can't find anything on irs.gov.  If you could cite your reference, I'd be very greatful.

tro · Answer

ref: CCH
If the option price is less than the fair market value of the stock at the time the option is granted, the employee recogonizes ordinary income in the amount of the lesser (1) difference between the fair market value of the shares when sold(or the the fair market value of the shares of the employee's death while owning the shares) and the option price for the shares or (2) the difference between the option price and the fair market value of the shares when the option was granted.  The balance of any gain is treated as capital gains(Code Sec. 423(c))  Withholding is not required with respect to amounts taxable under these rules(Code Sec 423(c).
ESPP(employee stock purchase should not be confused with ESOP(employer stock ownership)

Anonymous · Answer

Dear DF:  Look at the companies stock plan description. The 15% match may have been included in income on the year end W2 - look at he plan. Also the Walmart stock sale will be reported to you and possibly the basis will be listed. 

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent

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When I sell the stock I bought through an "employee stock purchase plan", how do I report the gain?

2 Answers