How are reinvested dividends treated in an ESPP?
March 10, 2004
Subject: ESPPs and reinvested dividends
Date: Sat, 14 Feb 2004
Dear Michael – as a compensation professional, I truly enjoy reading your articles on equity based plans.
I have a question that has been stumping me as I haven’t been able to find a definitive reference. How are reinvested dividends treated in a qualifying disposition from a 423 ESPP plan? As an example, if someone was to sell 1200 shares of an ESPP (purchased pre-2002 – with identical grant/purchase dates) of which 200 shares were from reinvested dividends during the same period, do the dividends adjust the cost basis? I can’t recall seeing a 1099-DIV issued on reinvested dividends for an ESPP so I was curious how to calculate their value or adjustment to basis in determinting either a tax loss or gain on sale.
I know there must be an answer to this, but haven’t been able to find it anywhere.
Your thoughts would be most appreciated,
Date: Thu, 04 Mar 2004
The dividends are taxable and the amount of the reinvestment is tax basis. Companies should be issuing form 1099-DIV for dividends paid with respect to ESPP shares.