https://www.fool.com/investing/general/2015/10/03/form-709-do-you-need-to-file-a-gift-tax-return.aspx
So the giver has to pay the taxes on gifts?
This link seems to indicate as such by listing the one case where the recipient has to pay the gift tax. Also gifts to pay tuition are excluded from being taxed! Also the fines for not paying the gift tax on time are very severe.
https://finance.zacks.com/dont-file-gift-tax-return-8338.html
This link spells almost all of the above out with exceptional clarity:
https://www.thebalance.com/when-to-file-gift-tax-return-3504960
This link precisely described how Doris filled out her form 709s.
It then says: "If the stock pays dividends, you will receive the dividends after the transfer and pay tax on them.",
and "If you sell the stock, your gain will be based upon what your father paid for the stock and not what it was worth when he gave it to you."
https://www.calcpa.org/public-resources/ask-a-cpa/tax-tips/general/how-will-a-gift-of-stocks-affect-my-taxes
Here surrounded by fluffy introductions of the basic concepts is the exact formula that I will have to use to calculate our capital gains tax using the basis:
https://www.moneycrashers.com/gift-tax-rate-rules-exclusion-limit/
A super interesting distinction laid out here is that the value of the gift is the value of the stock at the time given, but the capital gains tax is on the basis.
https://www.schwab.com/resource-center/insights/content/how-to-value-a-gift-of-stock
This link is more about regular stocks, but with so much delicious rules info, like weird gaps in the basis and long-term and short-term tax rates:
https://www.edwardjones.com/social/gifted-stock.html
But wait! What about "Items affecting basis"? Uh oh, this was an S corporation and the basis changes!
https://www.journalofaccountancy.com/issues/2012/jan/20114319.html
This answer from Turbo Tax seems to fully describe the algorithm for computing basis. Could it be true that income, on which I have already paid taxes, increases the basis????
https://ttlc.intuit.com/questions/4289459-how-do-i-calculate-the-basis-for-my-shares-of-an-s-corporation-that-was-sold
The answer is in this beautifully written analysis: YES! But this doesn't result in double taxes! By adding income to the basis, the taxed income is effectively subtracted from the capital gains tax!:
https://www.forbes.com/sites/anthonynitti/2014/05/06/tax-geek-tuesday-determining-a-shareholders-basis-in-s-corporation-stock-and-debt/#6c8dd08e5268
But wait, if that is the case, then is the income is reducing the tax on the initial value of the stock gift? I think this is just sign confusion. The income *adds* to the basis, which is subtracted out of the capital gain at the time of sale. Also a review of the form 709's seems to call into question whether we paid the taxes on the initial gifts, since they seem to be above the maximum untaxable value?
I found the above analysis almost verbatum right in an IRS page (fairly, this cribbing was mentioned in the analysis):
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis
Here is a tax group's worksheet for calculating one year's worth of basis adjustment:
http://www.thetaxbook.com/updates/TheTaxBook/Client%20Tax%20Tools/S_Corporation_Shareholders_Adjusted_Basis_Worksheet.pdf
Here is a different tax group's explanation of the basics for computing basis and their slightly less nice worksheet for calculating one year of basis adjustment:
https://irp-cdn.multiscreensite.com/f58c8f33/files/uploaded/S-Corp_Shareholder_Basis.pdf
Here is an official worksheet straight from the PA dept of revenue, with instructions specific to their weird K1 form:
https://www.revenue.pa.gov/FormsandPublications/FormsforBusinesses/Partnerships-S-Corps-LLCs/Documents/rev-998.pdf
It looks like my situation is that at the time of the gift, the fair market value was way below the basis. The basis continued to increase over time. The final sale price is still way below the basis.
This link seems to pretty clearly describe the consequences of the basis being greater than the fair market value at the time of the gift, and the final sale price being between the basis and the original fair market value. Do I have a net capital gain of zero? : https://budgeting.thenest.com/fair-market-value-basis-tax-treatment-gift-24602.html
Here is the exact same information in an IRS document, except that troublingly it omits the one case that seems to apply in my case, neither a gain or a loss: https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/property-basis-sale-of-home-etc
This article again describes the basis-fmv-sale price gap, although interestingly with different language. Still no attribution to applicable tax law. https://corporate.findlaw.com/finance/tax-basis-of-inherited-and-gifted-property.html
This IRS page doesn't describe my situation, but it starts with what forms are required, so I will probably be able to look into those specific forms to fill in my numbers. The rest of the article is about brokered stocks and debt instruments: https://www.irs.gov/businesses/small-businesses-self-employed/cost-basis-reporting-faqs
Here is the famous Publication 551 on the subject of cost basis, hopefully with all the details which cover my situation.
Oddly it does little more than other articles in terms of describing the case of no gain and no loss; you'd think that there would be a form on which this should be specifically reported: https://www.irs.gov/pub/irs-pdf/p551.pdf
If the computation of the capital gain or loss is simply a matter of basis, fair market value, and sale price, why does my last K1 have additional boxes filled in which were never had values reported on previous K1's? There's a value in section 8a, Net long term capital gain (loss) which unexpectly shows a positive if low value, and the mysterious sections 8c Uncaptured sec 1250 gain and 9 Net section 1231 gain (loss). Starting to search for the meaning of these entries.
The IRS publication on the K1 form is brimming with amazing information and I haven't even gotten to the part about sections 8 and 9 yet. It even has a huge section on computing basis including links to finally an official IRS worksheet for computing basis. It states exactly where to report the numbers for boxes 8a, 8c and 9 on tax forms and has some helpful information about what they mean.: https://www.irs.gov/instructions/i1120ssk
1250 Gain links:
Here's a description in fairly plain english of Unrecaptured Section 1250 Gain. Apparently our property is depreciated? And it's assuming that our basis is less than was report on form 709?
https://www.investopedia.com/terms/u/unrecaptured-1250-gain.asp
Here is an even plainer description, complete with examples involving rental houses. The mystery in this description is how it says that the section 1250 gain is a tax on the purchase price of the house after sale of the house, while still talking about the capital gain tax also. https://finance.zacks.com/unrecaptured-1250-gain-9659.html
Here is a much more technical article, although it does seem to have an example which almost perfectly matches my own. This article mentions the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions that was also mentioned in the IRS K1 instructions: https://www.taxcpe.com/blogs/news/recaptured-and-unrecaptured-real-estate-rental-section-1250-gain
This appears to be a link to the IRS Unrecatpured Section 1250 Gain Worksheet? https://taxmap.irs.gov/taxmap/ts0/unrecapturedsectio_o_24a36bb4.htm
1231 Gain links:
Apparently 1231 is tax speak for business property. Here is a basic description from the point of view of a small business owner:
http://loopholelewy.com/loopholelewy/15-selling-your-business/selling-your-business-12-sec1231.htm
This answer seems frustratingly incomplete. It references other gains unrelated to 1231 but does mention where to report the number on the Schedule D:
https://ttlc.intuit.com/questions/3856828-i-have-a-large-gain-on-my-k1-form-net-1231-gain-is-all-this-gain-taxable
More background information on 1231 and how it relates to 1250 and 1245 (the latter doesn't apply to us for some unclear reason):
https://www.investopedia.com/terms/s/section-1231.asp
More info for various tax forms:
Here are the IRS instructions for Schedule D. This directly applies to my returns: https://www.irs.gov/pub/irs-prior/i1040sd--2018.pdf#page=14
Schedule D supposedly requires that all stock sales be recorded on form 8949, but the instructions for form 8949 imply that it contains info tranferred from a form 1099-B or 1099-S, Neither of which I received: https://www.irs.gov/forms-pubs/about-form-8949
More about 8949. The language sounds a lot like sales of stocks in an S-corporation: https://www.investopedia.com/terms/f/form-8949.asp
These instructions for 8949 seem to spell it out; they say that I must use Schedule D only, and the corporation itself files 8949, I think: https://www.irs.gov/pub/irs-pdf/i8949.pdf
This TurboTax faq seems to imply that TurboTax will report info from the K1 on the 8949 as well as the Schedule D. This kind of confident sounding answer makes me wish that I was using TurboTax instead of H&R Block: https://ttlc.intuit.com/questions/3069162-where-do-i-report-the-sale-of-my-partnership-interest-in-an-s-corporation
Searches of reporting sales of S-corp stock often result in links that explain it from the point of view of the corporation itself. These are very interesting behind-the-scenes clues about why my K-1 might be looking the way it does:
https://info.legalzoom.com/record-s-corporation-stock-sale-23128.html
https://www.upcounsel.com/sale-of-s-corp-stock
http://www.scorporationsexplained.com/shut-down-an-s-corporation.htm
This article is so specifically talking about "liquidation" which is my scenario that it must be relevant to my case. The article mentions two IRS code sections that I've never seen mentioned before (331 and 1000), has a couple of fairly concrete examples, and then goes into better alternatives for doing liquidation: https://www.thetaxadviser.com/issues/2008/apr/understandingthetaxconsequencesofliquidationtoansshareholder.html
Final desperate searches for what is up with my K1 eventually led me to just go for the extension:
This answer about a "Final K1" insists that there should have been a 1099-DIV. No other source maintained this position so I think that this might have actually been a wrong answer, but it made me nervous.
https://ttlc.intuit.com/questions/4611573-final-k-1-after-dissolution-of-s-corp-how-to-enter-basis
Final step was to request extensions:
Here is the link from Maryland saying that the extension is automatic in the event of a federal extension (and MD taxes will be a refund): https://taxes.marylandtaxes.gov/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Filing_Deadlines/Extensions_and_Amendments/Request_an_Extension.shtml
