Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 24, 1993 TAG: 9305240007
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
For example, I purchase 100 units of Mutual Fund X at $10 per unit for $1,000. Later I redeem all the units at $12 per unit and receive $1,200.
The fund statement, however, tells me the "tax cost" of each unit I purchased is $9.50. Therefore, I presume, I report to the IRS a capital gain of $1,200 minus $950, or $250.
But why isn't the taxable amount $1,200 minus $1,000, or $200?
A: You are correct regarding the $200 figure. It is the taxable amount.
Kenneth Prickitt, a certified public accountant with the Roanoke firm of Young & Prickitt, said the tax basis is your original cost. He assumes, therefore, that the fund's statement is incorrect. In your example, the tax basis would be the $10 a share, or $1,000, that you originally paid.
If you have documentation of this purchase, Prickitt said, you should declare the proper tax basis to the IRS. This proves once more the importance of keeping the original papers when you buy any mutual fund, stock, bond or other investment.
Had you reinvested the dividends on which you would have been taxed, he noted, your unit cost would come down. But in your illustration of a simple mutual fund purchase and sale, he said, your tax basis would be $10 a unit.
Exceptions to marital deductions
Q: In connection with the marital deduction on the estate tax, Form 708 Schedule M states: "The marital deduction is generally not allowed if the surviving spouse is not a U.S. citizen."
I understand that prior to 1988 the decedent's spouse was not required to be either a citizen or a resident of the United States. With regard to this change in the rules, I have the following questions:
Are there any exemptions to the requirement for the surviving spouse to be a U.S. citizen? I am thinking of specific provisions in a tax convention between the U.S. and the foreign country of which the surviving spouse happens to be a citizen.
What rules are applicable to a situation in which the decedent was a resident, but not a citizen, of the United States whereas the surviving spouse is a U.S. citizen?
What are the rules when neither the decedent nor the surviving spouse are citizens of the United States?
A: Gary Duerk, a certified public accountant with the firm of Brown, Edwards & Co., said that, for those who die after Nov. 10, 1988, the marital deduction is not available for property passing to a surviving spouse who is an alien. This applies to a resident alien or a non-resident alien.
An exemption to this provision, Duerk said, is a Qualified Domestic Trust (QDOT). Property placed into a QDOT before the date the decedent's estate return is filed will qualify for the marital deduction.
Another exception is for the surviving spouse to become a U.S. citizen before the due date of the decedent's estate tax return, he said. The marital deduction is then allowable and there is no requirement that the property be placed in a QDOT.
An estate tax return may be required if the decedent owned property in the United States and was a citizen, a nonresident or a resident of the United States. Duerk said a citizen or resident must file an estate tax return if the value of the gross estate is more than $600,000. A non-resident or non-citizen must file an estate tax return, form 706NA, if the value of the gross estate located in the United States is more than $60,000.
For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death, according to Duerk. If the decedent's surviving spouse is a U.S. citizen, then property passing to the surviving spouse would qualfy for the marital deduction.
He suggested that you read Internal Revenue Service Publication 448, Federal Estate and Gift Taxes.
Further stock investigation needed
Q: The family is in the process of settling my mother's estate. Among her records, we found the following certificates which represent an ownership in the following company: Coble Dairy Products Cooperative Inc., Lexington, N.C., William C. Layman, assistant treasurer and comptroller. There are two certificates in the 1956 and 1957 series.
Please advise the status of the above-mentioned business. It would be interesting to learn whether the certificates have a monetary value.
A: The certificates seem to have no value, but that might not be a final verdict.
Peter Milward, manager of the Roanoke office of J.C. Bradford & Co., said the firm's librarian found the company listed in stock records for the 1950s. It had both common and preferred stock.
After that, it simply disappeared from the records. That's unusual because more information about a company's fate is usually detailed.
Milward and the librarian said the company most probably went out of business. The stock cannot be sold under that name because it is not listed. If you want to be sure, however, Milward suggested that you write to the North Carolina Secretary of State at Raleigh for more information.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
by CNB