2.26 Ark. Code R. 51-411(a)

Current through Register Vol. 49, No. 9, September, 2024

Rule 2.26-51-411(a) - Sale of Shares of Stock

When shares of stock in a corporation are sold from lots purchased at different dates and at different prices and the identity of the lots cannot be determined, the stock sold shall be charged against the earliest purchases of such stock. The excess of the amount realized on the sale over the cost or other basis of the stock will constitute gain.

In the case of stock in respect of which any stock dividend was paid, the basis for determining gain or loss from a sale of a share of such stock shall be the difference between the sale price and the quotient of the cost or other basis of the original shares of stock divided by the total number of the old and new shares.

Where common stock is received as a bonus with a purchase of preferred stock or bonds, the total purchase price shall be fairly apportioned between such common stock and the securities purchased for the purpose of determining the portion of the cost attributable to each class of stock or securities but if that should be impracticable in any case, no profit on any subsequent sale of any part of the stock or securities will be realized until out of the proceeds of sales shall have been recovered the total cost.

Where a corporation issues to its shareholders rights to subscribe to its stock, the value of the rights does not constitute taxable income to the shareholder, although gain may be derived or loss sustained by the shareholder from the sale of such rights. In this connection, the following rules may be stated:

(1) If the shareholder does not exercise, but sells, his rights to subscribe, the cost or other basis of the stock in respect of which the rights are issues, shall be apportioned between the rights and the stock in proportion to the respective values thereof at the time the rights are issued and the basis for determining gain or loss from the sale of a right on one hand or a share of stock on the other will be the quotient of the cost of other basis assigned to the right or the stock, divided, as the case may be by the number of rights issued or by the number of shares held.

(2) If the shareholder exercises his rights to subscribe, the basis for determining gain or loss from a subsequent sale of a share of the stock in respect of which the rights were issued shall be determined as in Paragraph 1. The basis for determining gain or loss from a subsequent sale of a share of the stock obtained through exercising the rights shall be determined by dividing the part of the cost or other basis of the old shares assigned to the rights plus the subscription price of the new shares by the number of new shares obtained.

(3) If the stock in respect of which the rights are issued was purchased at different times and at different prices and the identity of the lots cannot be determined, or if the stock in respect of which the rights are issued was purchased at different times and at different prices and the stock rights issues in respect of such stock cannot be identified as having been issued in respect of any particular lot of such stock, the basis for determining the gain or loss from the sale of the old share or the rights in cases where the rights are sold or from the sale of the old or new shares in cases where the rights are exercised shall be ascertained by applying the cost or ascertained value of the rights from the earliest purchased stock.

The taxpayer may at his option include the entire proceeds from the sale of stock rights in gross income in which the basis for determining gain or loss, from the subsequent sale of stock in respect of which the rights were issued, shall be the same as though the rights had not been issued.

2.26 Ark. Code R. 51-411(a)