TAX Help -please

[maslarcpa]

I have a client who is likely to get a presidential appointment soon. Due to the conflict of interest guidelines, he will be required to sell large holdings in Exxon stock which he has held for years (& in fact inherited it). Someone told him that there is a special tax break in which he can sell the shares, reinvest in a mutual fund & transfer the old exxon basis to the new fund with no recognition of gain. It sounds almost too good to be true, but could make sense, since the government if forcing him to sell.

I have searched & cannot find anything that addresses this. Any ideas?

[kcjenkins]

I don't believe this exists, although I'm interested in any thing you find on it. I'm pretty sure that they could not make a tax break for Presidential appointees, per sa. And the person is not being 'forced' to sell, he is making a choice to do this in order to take the job. But what he could do without tax cost is to put the shares into a qualified blind trust, instead.

[samingeorgia]

I agree with KC -- they need to set up a blind trust. Most of these guys couldn't afford the tax hit if they were forced to sell their holdings to accept government service, especially a political appointment that could be gone with the next election. I'd seek an atty. that specializes in such matters and knows the regulatory ins and outs, i.e. a big firm with a large Washington, DC presence, if it was me.

[OldJack]

I believe you got your answer on www.thetaxbook.com but for others here the answer is code sec. 1043:

Sec. 1043. Sale of property to comply with conflict-of-interest

requirements

-STATUTE-

(a) Nonrecognition of gain

If an eligible person sells any property pursuant to a

certificate of divestiture, at the election of the taxpayer, gain

from such sale shall be recognized only to the extent that the

amount realized on such sale exceeds the cost (to the extent not

previously taken into account under this subsection) of any

permitted property purchased by the taxpayer during the 60-day

period beginning on the date of such sale.

(B ) Definitions

For purposes of this section -

(1) Eligible person

The term "eligible person" means -

(A) an officer or employee of the executive branch of the

Federal Government, but does not mean a special Government

employee as defined in section 202 of title 18, United States

Code, and

(B ) any spouse or minor or dependent child whose ownership of

any property is attributable under any statute, regulation,

rule, or executive order referred to in paragraph (2) to a

person referred to in subparagraph (A).

(2) Certificate of divestiture

The term "certificate of divestiture" means any written

determination -

(A) that states that divestiture of specific property is

reasonably necessary to comply with any Federal conflict of

interest statute, regulation, rule, or executive order

(including section 208 of title 18, United States Code), or

requested by a congressional committee as a condition of

confirmation,

(B ) that has been issued by the President or the Director of

the Office of Government Ethics, and

that identifies the specific property to be divested.

(3) Permitted property

The term "permitted property" means any obligation of the

United States or any diversified investment fund approved by

regulations issued by the Office of Government Ethics.

(4) Purchase

The taxpayer shall be considered to have purchased any

permitted property if, but for subsection ©, the unadjusted

basis of such property would be its cost within the meaning of

section 1012.

(5) Special rule for trusts

For purposes of this section, the trustee of a trust shall be

treated as an eligible person with respect to property which is

held in the trust if -

(A) any person referred to in paragraph (1)(A) has a

beneficial interest in the principal or income of the trust, or

(B ) any person referred to in paragraph (1)(B ) has a

beneficial interest in the principal or income of the trust and

such interest is attributable under any statute, regulation,

rule, or executive order referred to in paragraph (2) to a

person referred to in paragraph (1)(A).

Basis adjustments

If gain from the sale of any property is not recognized by reason

of subsection (a), such gain shall be applied to reduce (in the

order acquired) the basis for determining gain or loss of any

permitted property which is purchased by the taxpayer during the

60-day period described in subsection (a).

[kcjenkins]

Thanks for that, OldJack, it's never too late to learn something new. Not that I expect to need it, but then, it seems that everytime I say that, I find myself needing it in a short time.