Conference 7.286::digital

    What purchase price?  Digital gave those to you at fair market value
    back when the tax code made it beneficial to Digital to do so.
    
    				-John

    What they are: those should be the old ES*O*P (Ownership) shares that
    got shunted into everyone's ESPP accounts when the ESOP plan was
    dismantled, way back when.

  When Digital went to statement of ownership, they offered, as a
  one-shot deal, to accept certificates that were turned back in.
  I know -- I did it. But the certificates obviously don't state
  a purchase price so their database couldn't contain that infor-
  mation.

  You were responsible for remembering the purchase price.

                                   Atlant

>  You were responsible for remembering the purchase price.

Go to the library, look up a newspaper on microfiche (if they still do this)
and get the stock quote for the day you bought the stock.

MM

    Did we actually pay for the shares in the ESOP?  I thought they were
    just given to us.  In that case, I had assumed that since you paid
    $0 for the shares, if you sold them, everything was a capital gain.
    
    				-John

Yes, you paid for ESOP shares.  Pretty much the same deal as ESPP.

				Steve

    Speaking of ESPP I was not aware until recently that when you sold
    shares that the base price for taxes was FMV. I always thought the base
    price was discounted employee purchase price. Well I guess I've done my
    share in lowering the deficit. 

If by esop you were referring to the Emp. Stock. Ownership program,
they the shares were free.  The federal gov't at one time
gave a tax incentive to Digital for the shares.

If by esop you were referring to the Emp. Stock Option program,
then that's a different story.

Gim

Re: .7

Yep - you've been paying taxes twice for the 15% discount.  Digital already
adds the 15% amount to your W2 if you sell within two years of purchase,
so you owe taxes on that amount.  If you then calculated the capital
gains based on the discounted purchase price, you paid double taxes.

Each January, if you sold shares the year before, Digital sends you a
statement indicating how much was added to your W2 and how to calculate
your actual capital gains.

				Steve

re: .9
    
>Yep - you've been paying taxes twice for the 15% discount.  Digital already
>adds the 15% amount to your W2 if you sell within two years of purchase,
>so you owe taxes on that amount.
    
    So, if you sell more than two years from date of purchase, nothing is
    added to the W2 and you need to use the discounted price as the basis?
    
    	Thanks,
    
    	Steve

    Well, almost.  You still don't use the discounted price as the basis.
    You use the FMV always.  In addition, you have to report the other
    15% as misc. income on form 1040 down the the bottom of the first page.
    
    				-John

    re: .12
    
    > You use the FMV always.
    
    I assume in the case of selling at a loss, you would use the discounted
    price as the basis, correct?
    
    	Steve

    re.10 & re.13
    
    I talked to investor services and they told me always use FMV. It was
    my understanding that as soon as you take ownership of the stocks the
    difference between FMV and purchase price shows on your W2. 

Yes, you always use FMV as the basis.  After two years Digital doesn't
add the 15% to your W2 but, so I understand, you are still supposed to
report it on your own.

				Steve

    (In the U.S.), for recent stock sales, Digital treats the difference 
    between your cost and FMV as income.  
    
    This means that you do not pay capital gains tax, but rather the
    difference is taxed as income.   This can mean a pretty good savings on 
    taxes.  
    
    Is this logic correct?
    
    -- Kevin

The tax treatment is explained in the prospectus to the employee stock purchase
plan, but I haven't gotten a new one in years. I'm not sure, but maybe the idea
of selling DEC stock at a loss hadn't occurred to anyone in the halcyon years
when the prospectus I have (somewhere) was published :( .

In 1994 I sold shares purchased in 1988:

Cost	Beginning FMV	Purchase Date FMV	Sale Price
87.25	119.75		102.437			30.25

My plan is to take a loss/share of (cost-saleprice) = $87.25-30.25 = $57.

(Actually, the sale price is less a bit of commission.)

That's what I lost. Is that incorrect?

By the way, people should be aware of the "wash" rule whereby you can't take a
loss on stock if you replace (repurchase) it within +/- 30 days of the sale.
What that generally means is that if you're selling DEC at a loss, you must do
so a month before or a month after the plan purchase dates (avoid selling after
November 1 or between May 1 and July 1, approximately). However, if you sell
100 shares at a loss and buy in say 80 within 30 days, you can still take a
loss on the 20 shares you didn't replace (not recommended, however). I'm not
sure if immediately selling the new purchase affects this rule.

I always stuggle with the above since for the purposes of selling DEC stock,
the definition of "year-end" for tax loss selling is around Halloween. I'm
always hoping the stock price will go up and it's hard to abandon the hope
before December 31. However, to cheer myself up, I note the current price is
little different than what I received. (Closed at 32-1/4 today.)

I've heard people say that when they sell they want to sell the stock they paid
the *least* for to minimize their loses. I always sell to get the biggest loss
to write off, although I've had years where I had to carry forward some. (Aside
from owning DEC stock, I gave up investing in individual companies years ago
and now just do mutual funds, so nowadays the only losses I have are in DEC
shares.) 

Disclaimer: there are probably errors and oversimplifications in my
interpretation of the tax code. 

-- Steve

    This has been discussed ad nausem in the DIGITAL_INVESTING conference.
    Y'all might want to reference those discussions for your questions...
    
    Dave

��                        <<< Note 3756.8 by SLOAN::HOM >>>
��                       -< Some ESOP were free - almost >-

��If by esop you were referring to the Emp. Stock. Ownership program,
��they the shares were free.  The federal gov't at one time
��gave a tax incentive to Digital for the shares.

    Bzzzzzzzzzzzzzzzzzzzzt.  Wrong answer.

    I have in my hand, Form 1099-R (1987)

    This is for :
                   'Total distribution from profit-sharing,
                   retirement plans, individual retirement
                   arrangements, insurance contract, etc.

    It shows the cost basis for the shares as $59.58 per share.
    Since I never surrendered any shares, this is for the
    one-time thing where it was beneficial for digital to give
    you the ESOP shares.

    "The amount in Box 3 has NOT been included in your W-2.
    If you have any tax questions, please consult your tax
    advisor.  Investor Services cannot provide tax advice."

    
    RE .18
    
    I sure hope these folks listen to you. I can only assume the
    information in DIGITAL_INVESTING is more accurate than the information
    in this string!!
    
    					Ed
    
    

    Re: -.1 inaccurate information in this string. . .
    
    Whatdoyamean?  I think I saw every possible answer to the basic
    question "what should I use as my Cost Base?"
    
    The answer's gotta be in here somewhere.
    
    Bill

    re: .19
    
>>       <<< Note 3756.19 by LEEL::LINDQUIST "Luke 2:4; Patriots 200:1" >>>

>>��                        <<< Note 3756.8 by SLOAN::HOM >>>
>>��                       -< Some ESOP were free - almost >-

>>��If by esop you were referring to the Emp. Stock. Ownership program,
>>��they the shares were free.  The federal gov't at one time
>>��gave a tax incentive to Digital for the shares.
    
>>   Bzzzzzzzzzzzzzzzzzzzzt.  Wrong answer.
>>
>>    I have in my hand, Form 1099-R (1987)

    
    If you read my title - I said the ESOP shares were free - almost.
    The "free" referred to the fact that you didn't need out of pocket
    money to get the shares. The "almost" referred to the fact that you
    need to pay taxes.
    
    
    For those of you who weren't around in the 80's, Digital has a ESOP -
    Employee Stock Ownership Plan.  I quote from Investors Service records:
    "... Digital will give to its employees an ownership interest in the
    company through Digital common stock. Each eligible employee will
    receive from Digital, a percent of their fiscal earnings....."
     
    When you get stock under some of the older stock option plans - and
    there are many, you need to buy the stock at the option price; you
    either paid Digital that amount or use a simultaneously exercise and
    sell.
        
    Gim
    
    
    
    

Now I realy don't know what I have. 
Free'bies from DEC or somthing else?
I don't recall any free'bies.

I recall surrendering of the paper shares much farther
back than 1987.

However, I did call the broker and asked him what the
share closing price was back in May 1987.  $165�.

:(  

Did anyone else get any free'bies in May 87?


These can't be stock options. Stock options have their own
statement sheets. This says SURRENDERED SHARES.

Dan

> These can't be stock options. Stock options have their own
> statement sheets. This says SURRENDERED SHARES.

I think what you have are what Atlant described in .3.
Until the early '80s (I may be off on the dates), you bought your ESPP
(the payroll deduction stuff) and would have physical paper shares delivered
to you.  I suppose you still can get his option.
When they went to the we'll-hold-the-shares-for-you plan, you could
turn in your stock certificates and Investor Services would add the share 
amount to your account.  You "surrendered" your stock certificates 
into the plan.  But since there is no record of price/cost/date
with paper shares, they (IS) had no record of what you paid, when, or even if
they had been ESPP shares.  So each investor had/has to remember 
the relevant data from the paperwork received when the stock was bought.
This is just like you'd have to  do if you still had the paper shares 
(or any other taxable investment) yourself.

- tom]

    RE: .13
    
    No, you do not use the discounted price for the basis, ever.
    
    Consider what happens if you sell recent stock for a loss:
    
       - You get the 15% reported as income by Digital
       - You get to take whatever capital loss you incurred FMV
    
    So if you extend this to older stock:
    
       - You report the 15% as income on the "other income" line on the 1040
       - You get to take whatever capital loss you incurred using the FMV
    
    
    RE: .others about the ESOP
    
    I do not rememmber paying for any of the few shares I got from the
    ESOP.  If they were gifts from Digital (just like the 15% with the
    current ESPP), then when you sell them, you'd:
    
       - You report the FMV of the gift shares on the "other income" line
       - You get to take whatever capital loss you incurred using the FMV
    
    				-John
    
    

    For a recent sale:
    
    You bought stock for a certain amount of money, $x.  You received a
    check for $y when you sold the stock.  y-x is your gain (loss). 
    Digital reports on your W2 the 15% discount, $z.  (y - x) - z is the 
    capital gain (loss) you must report.
    
                                          August

	Several years ago I requested stock certificates so I could use them
	for colateral on a loan.  After the loan was paid off I sent the stocks
	back to the ESPP and they were then listed as surrendered shares on all
	of my statements until I sold them.
						JT

    After a conversation with Ed Vogel, I'd like to say that I am not
    unsure of my details for old stock sales.  It has been a couple of
    years since I had old stock sales and the tax laws have moved around
    a little since I last did it.  I'll do some IRS tax code reading this
    weekend...
    
    				-John

<Caveat: This is my reading on all this stuff, and I am neither a tax
professional nor an investment professional.  Also, Investor Services, which
put together the information on which I am basing this discussion, does not
profess to offer tax advice.>

>>    You bought stock for a certain amount of money, $x.  You received a
>>    check for $y when you sold the stock.  y-x is your gain (loss). 
>>    Digital reports on your W2 the 15% discount, $z.  (y - x) - z is the 
>>    capital gain (loss) you must report.

The questions are, what is that "certain amount of money, $x," and what is "the
15% discount, $z."

According to the VTX pages on the stock plan, for a sale within two years of
purchase:

     3. If you dispose of shares within two years after the date of the
        beginning of the Payment Period when you acquired the shares, at that
        time you will recognize ordinary compensation income equal to the
        fair market value of shares on the day you purchased them (the last
        business day of the applicable Payment Period) less the amount you
        paid for the shares. In addition, you will recognize a capital gain
        or loss in an amount equal to the difference between the amount
        realized upon the sale of the stock and your basis in the stock
        (i.e., in this case, the purchase price plus the amount taxed to you
        as ordinary compensation income). If you hold the stock for more than
        one year this gain or loss will be a long-term capital gain or loss.

(Get this via VTX IS, select option 6 (index), enter the word "CAPITAL", and
find the item on "CAPITAL GAINS TAX", and check the pages around it.)

Based on this, you bought the stock at FMV on the purchase date (total price =
A), sold it for the amount you received (B), and your capital gains is B - A.

The purchase date is the date at the end of the 6 month payment period.

Your actual cost (C) was 85% of FMV at either the beginning or the ending of
the payment period, whichever is lower.  Digital reports A - C as ordinary
income on your W2.  This may be greater than a 15% discount; the discount is
15% only if the stock does not rise in value over the 6 month period.

If you hold the stock for two years or more:

     2. If you dispose of shares two years or more after the date of the
        beginning of the Payment Period when you acquired the shares, then at
        that time you will recognize as ordinary compensation income an
        amount equal to the lesser of:

        (a) the excess of the fair market value of the shares on the date
            of disposition over the option price, or
        (b) 15% of the fair market value of the shares at the beginning of
            the Payment Period.

     In addition, you may recognize a long-term capital gain or loss in an
  amount equal to the difference between the amount realized upon the sale of
  the stock and your basis in the stock (i.e., purchase price plus amount, if
  any, taxed to you as ordinary compensation income).

This gets more complicated.  If the stock has dropped in value (relative to the
beginning FMV), then the income amount is determined from (a).  (Not clear from
here, but this should be clipped at zero; they shouldn't give you a negative
income amount.)  If the stock has risen in value sufficiently, then the income
amount is determined by 15% of the BEGINNING FMV, which may or may not have
been the FMV used to calculate the discounted price.

The gains amount is then B - C - income.

						Brian

    
    Brian -
    
    	A really great, thorough reply. Well done. I can now actually do
    this for my 1994 Tax Forms. Thanks.
    
    
    	Have you ever given thought to working for the IRS? ;-)
    
    
    		the Greyhawk

            RE:.23

         >Did anyone else get any free'bies in May 87?

    Dan,
    	I was there and did that.  I'm not sure what the program was called
    but form the late 60's to 87 (I'm not really sure about the program
    start date, somebody told me the late 60's) you received �% of your 
    annual salary + or - in stocks.  You weren't allowed to do anything with
    these stocks for 7 years.  When the program was discontinued (no longer 
    a tax advantage for DEC I believe) they gave you all the shares you had 
    accumulated.  The 7 years restriction was also lifted which allowed me 
    to sell that very same day (I got the $165.25).

    Joe 

re .14
>    I talked to investor services and they told me always use FMV. It was
>    my understanding that as soon as you take ownership of the stocks the
>    difference between FMV and purchase price shows on your W2. 

If you "take posession" of your certificates (have them mailed to you), the 
company does not automatically add the "delta" to your Wages Statement.

If you SELL any shares through IS, they will add it in at the end of the year.

Dave

    Re .21 - Sorry my earlier rely did not contain the info
    you wanted. I really did not have time to enter a reply 'till now.

    .29 pretty well says it all...to summarize the most common error 
    I has seen is the definition of cost basis. This is what you 
    need to put on Schedule D when computing capital gains/losses. 
    The bottom line is that the basis is always what you paid for the 
    shares plus any ordinary income that you had to report on form 1040. 
    If you sell within 2 years this will be the FMV, but if you go beyond
    two years things can get tricky as Brian explained.

    What no one has said is that you should also add the commission and 
    tax that you paid when you sold the stock to the basis.


    The other item worth noting is from .16

>This means that you do not pay capital gains tax, but rather the
>difference is taxed as income.   This can mean a pretty good savings on
>taxes.

    If I understand this, the author believes that it is better for tax
    purposes to report regular income than a capital gain. This is
    not correct. In most cases it does not matter, but in a few cases 
    (like those with large capital losses or those in higher brackets) 
    it is better to report the income as a capital gain than as regular
    income.

    						Ed    


    

    Ok. I got the following from VTX.
    
    		ESPP Price Information
    
    	FMV	01-JUN-95	45.625
    	FMV	30-NOV-95	59.062
    	ESSP	01-DEC-95	39.000
    
    I put my sell order Wed. for this period. I have two questions:
    
    1. Should I assume that we bought at 85% of 45.625
    2. Should I assume that I have sold at the openning price 58.75 (approx)

You can't assume #2 - the sale price will be the average sale price for the
day, not the opening (nor closing).  #1 is a pretty good assumption.

			Steve

re .-1
	1. You can assume that you bought at ESSP @$39.000
	   I think it would be 85% of the AVERAGE FMV on 6/1/95
	   ... and then rounded up...

	2. You cannot be assured of selling at an opening
	   price of $58.75 ... I think that it will be an
	   average of the block sales made throughout the day.
	   You may be able to access the touchtone system
	   223-1880 (i think) to get the exact price. They are
	   pretty good at updating it pretty quickly .

	The price has probably dropped a bit today because of
	the large number of block sales for the prearranged sales.

            Prior                                                   Volume
            Close      Open      High      Low      Close  Change   (100s)
    DEC    58 7/8    58 3/4    58 3/4    57 5/8    57 7/8 -1         14639

The drop was not so bad...we should have sold at no less the 57 7/8.

Burns

    ESPP purchases and sales don't occur on the open market, so they have
    no effect on the price.  It's all paperwork shuffling.
    
    				Steve

    Not true, purchases don't occur on the open market, they come from
    Digital's treasury but sales do go to the market not back into the
    treasury. 

 +-+-+-+-+-+-+-+TM                                                  -----------
 |d|i|g|i|t|a|l|                 Digital Stock Quote                 LIVE WIRE
 +-+-+-+-+-+-+-+                                                    -----------
                                                             +----------------+
   DEC Quote Received on  4-Dec-1995 at 13:16 Eastern Time:  | 62 1/8  +4 1/4 |
                                                             +----------------+
            Prior                                                   Volume
            Close      Open      High      Low       Last  Change   (100s)
           -------   -------   -------   -------   ------- ------  --------
     DEC    57 7/8    57 5/8    62 1/2    57 5/8    62 1/8 +4 1/4     15430

    DJIA   5087.13   5086.41   5107.01   5074.13   5104.48 +17.35          

                  - Stock quotes are delayed over 15 minutes -                  


                         +---ESPP Price Information---+
                         |  FMV   01-Jun-95   45.625  |
                         |  FMV   30-Nov-95   59.062  |
                         |  ESPP  01-Dec-95   39.000  |
                         |  ESSP  01-Dec-95   58.138  |
                         |  FMV   01-Dec-95   58.187  |
                         +----------------------------+     12 Day History  -> 
 ------------------------------------------------------------------------------



                         +---ESPP Price Information---+
                         |  FMV   01-Jun-95   45.625  |
                         |  FMV   30-Nov-95   59.062  |
                         |  ESPP  01-Dec-95   39.000  |
                         |  ESSP  01-Dec-95   58.138  |
                         |  FMV   01-Dec-95   58.187  |
                         +----------------------------+     12 Day History  ->