Deferrred settlement of stock trade - Long or Short term?

[btreitma]

In Sep '07, I received stock in a privately-held company which was acquired 12/03/2007 by another company. The terms of the acquisition called for 90% of the proceeds of the sale of the stock to be distributed in 2007 and 10% 24 months later (to protect against fraud).
My question is: Since the sale occurred in 2007, should I have paid taxes on the entire sales price then? (I didn't.) If not, is the money that I received in Dec '09 considered a long- or short-term gain?
Any pointers to how deferred payments for stock sales of this nature are treated in the tax laws would be appreciated.

 

[LdiJ]

In Sep '07, I received stock in a privately-held company which was acquired 12/03/2007 by another company. The terms of the acquisition called for 90% of the proceeds of the sale of the stock to be distributed in 2007 and 10% 24 months later (to protect against fraud).
My question is: Since the sale occurred in 2007, should I have paid taxes on the entire sales price then? (I didn't.) If not, is the money that I received in Dec '09 considered a long- or short-term gain?
Any pointers to how deferred payments for stock sales of this nature are treated in the tax laws would be appreciated.

You shouldn't ever pay tax on the full sales price. You obviously had basis in the stock and you should have paid capital gains tax only on your capital gain. Your basis would have been what you paid for the stock, or if it was given to you as a gift the donee's basis, or if you inherited it, fmv at the time you inherited it.

You should have taken 90% of your sale minus 90% of your basis in 2007 as a short term capital gain.

In my opinion the remaining 10% capital gain could be considered a long term capital gain since payment was deferred for 24 months.

 

[btreitma]

Thanks.
My cost basis for the stock is virtually zero ($0.01/share).
The problem I'm facing is that there was a long (24-month) period between the sales date and the settlement date for the 10% holdback.
Acquisition date: 09/01/2007
Sales date: 12/03/2007
Settlement date for 90% of proceeds: 12/03/2007
Settlement date for 10% of proceeds: 12/03/2009
Even though the Sales Date was less than 12 months after the Acquisition Date, you think that I can consider the second payment to be a long-term gain?

 

[efflandt]

What matters for income is when it is actually paid. So the 90% (minus its cost basis) would have been short term 2007 income, and 10% (minus its cost basis) would be long term 2009 income.

 

[LdiJ]

What matters for income is when it is actually paid. So the 90% (minus its cost basis) would have been short term 2007 income, and 10% (minus its cost basis) would be long term 2009 income.

I agree. Individual taxpayers are cash basis taxpayers rather than accrual basis taxpayers therefore WHEN you receive the income determines its taxability. Your "sales date" for the 10% is the date you received the money.