CGA recalculation due to incorrect basis

CGA recalculation due to incorrect basis

Forum topic posted in Forum on 15 July 2009| 1 comments
audience: | last updated: 15 July 2009
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Joined: 10/05/2007
Points: 30
One of our donors established a $180,000 CGA in 2001 using appreciated stock which she inherited. She used an incorrect amount as the cost basis of the stock, resulting in $116,000 capital gain allocated to the annuity payments over the course of the expect 20 year lifetime of the annuity. After 8 years she realized that she should have used a different cost basis which would have resulted in $43,000 capital gain allocation, and that she has been paying far more capital gain tax than she should have. We have recalculated the breakdown of the annuity so that the correct capital gain amount is recognized. However the donor feels that she should be able to get some kind of credit from IRS for the over payment of the capital gain tax, and that the annual 990 issued by the charity should reflect a zero amount of capital gain allocation. I have recommended that she speak with a CPA; it seems to me that the charity needs to report the corrected amount annually (not a zero amount) and that if she is allowed a credit from IRS, that would have to be reported separately to offset the taxable gain for that year. Has anyone had experience with a situation like this?

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Joined: 08/23/2007
Points: 45
CGA basis question
I believe The Service would prefer that the NPO issue ammended 1099's for all open tax years of the donor (probably 3 years) and use the corrected basis on-going. The donor should file ammended Form 1040x for the open years based on the ammended 1099's. If a refund is due her from the ammended Form 1040x's then she get the "proper" result. I don't think she can go back for 8 years or use a zero amount.
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