March 7, 2007
Possible ESPP-related bug in TurboTax 2006 (and 2005)
Many companies offer an Employee Stock Purchasing Plan, which enables employees to buy shares of the company’s stock at a discounted price per some defined period. The employee can then sell the shares, or hold on to them.
Unfortunately, it appears to me that TurboTax 2006 doesn’t do the expected thing in certain cases when the ESPP shares are sold. (To be clear, this problem might be bigger, but I only found this in ESPP.)
Short version: If you have a stock transaction that results in $0.00 capital gains/losses, TurboTax may not document this on your Schedule D. However, the IRS will match your Schedule D against your 1099-B and this may raise warning flags.
Let’s say you work for DeCheung Light Industries, Inc. (symbol DCHG) and your company offers a 15% discount. You get your ESPP shares in 2002, and you sell them in 2006. Here’s a hypothetical calculation using made up numbers:
| Period Start Date: | 1/1/2002 |
| Period Start Price: | $33.52 |
| Period End Date: | 6/30/2002 |
| Period End Price: | $27.35 |
| Purchase Price: | $23.25 |
| Shares Purchased: | 100 |
| Sales Date: | 6/10/2006 |
| Shares Sold: | 100 |
| Sales Price: | $25.46 |
In this example, the End Price is lower than the Begin Price, and the Sales Price was Lower than the End Price. It is also a qualifying sale. As a result, you would have Ordinary Income of $221, and $0.00 in capital gains/losses.
It looks like TurboTax correctly enters the $221 of Ordinary Income, but then neglects to enter this transaction at all onto the Schedule D. However, if you call the IRS, they will tell you that even if there are no capital gains/losses you should document it on the Schedule D since they compare it to the 1099-B.
So… long story short: make sure all transactions on your 1099-B show up in the Schedule D.
By the way, it looks like this bug occurs in TurboTax 2005. You can probably guess the inspiration for this post.
If you think I’ve made a mistake in this, please let me know.
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6 Comments to “Possible ESPP-related bug in TurboTax 2006 (and 2005)”
March 11th, 2007 at 8:24 pm
[...] week I blogged about a possible TurboTax 2005/2006 bug: Possible ESPP-related bug in TurboTax 2006 (and 2005) — decheung.com Short version: If you have a stock transaction that results in $0.00 capital gains/losses, TurboTax [...]
April 4th, 2007 at 3:26 pm
Thanks for the great info- This what I was suspecting, and has happened to me!! The IRS got back to me and wanted me to redo the Schedule D and report the ESPP sales!! TurboTax 2005 never did that for me!
May 22nd, 2007 at 4:32 pm
Thank you so much for posting this. I received a correction notice from the IRS yesterday for Tax Year 2005. We sold ESPP stock, and checked it many times, but the Turbox Tax interface isn’t the same as the tax form. As a result, the numbers I entered didn’t appear in the right boxes. Ka-ching for the IRS.
May 23rd, 2007 at 10:52 am
I emailed and telephoned Intuit regarding this issue and was told that Intuit will pay any penalties associated with this bug. Anyone affected may wish to contact Intuit’s online support for Turbo Tax “TurboTax Support”
October 14th, 2007 at 3:14 pm
Finally getting finished with my 2006 return under extension and noticed the same annoying thing, except I came at it from the other side. I entered my 1099 related to my employee stock purchase plan sale, it shows up correctly on schedule D, but I noticed that no change to my income occurred. I had to manually override my income worksheet to get the ordinary income portion to feed into my line 7 1040 income.
With all the upsells to the Premier version along the way here, I suspect that maybe only Premier did espp right in 2006. I was using Deluxe, fwiw.
October 22nd, 2007 at 11:48 pm
I also got a notice form IRS saying that my W2 totals were wrong for year 2005 yr tax returns. It is weird because the totals between my W2 and what was on Tubo tax was an odd number like $1782 difference. I also entered the employee stock purchase sale and hava V on one of the boxes for sale of stock sale on W2. Now IRS says I owe them money. I usally enter the W2 amounts mannually but this time the program downloaded from my employee’s site..something’s realluy fishy here. So this time I went to a CPA to do my taxes for year 2006..
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