Discussion:Stockbroker's Error
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> Stockbroker's Error
Discussion Forum Index --> Tax Questions --> Stockbroker's Error
Death&Taxes (talk|edits) said: | 29 October 2009 |
| Stockbroker/Client for a regional firm erred in buying a customer the wrong stock, an error which cost his employer 15K. He has agreed to repay the brokerage. Broker/employer will collect this amount from his pay after taxes, not reducing his gross income. Because he is already hit by AMT every year, this will mean little or no tax saving [only saves on the State and perhaps the locality] because in my mind the repayment is EBE.
I reason this way because after talking with him, I cannot see how he could claim he is repaying commissions, and in reality, as I told him, 'you mean you don't carry errors and omissions insurance.' He went into a song and dance about the lousy market and his income [he's been working there since the mid-80s] and other problems like that. Anyone here think the employer should have reduced his gross, and if so, why? | |
| 29 October 2009 | |
| I don't believe that debts to an employer can be netted with gross pay - that would unfairly cost the government FICA. | |
| 29 October 2009 | |
| This might be genuine salary sacrifice where he has agreed to lower pay just to keep his job ?? | |
| 29 October 2009 | |
| I would think that the employer would have a written policy statement - perhaps an employment agreement - indicating how this is handled. I would imagine that others have made mistakes before your client. | |
| 30 October 2009 | |
| You said this was to reimburse the $15K that it cost his employer. That sounds like the employer had to make a payment to the customer to make them whole. Repayment of damage claims by an employee are after tax and deductible on Sch A with a 2% haircut. | |
RoyDaleOne (talk|edits) said: | 30 October 2009 |
| I am curious as to why this is not an above the line deduction? For those who do not know me beware when I ask a question. | |
Death&Taxes (talk|edits) said: | 30 October 2009 |
| Kathi accurately describes the situation.
He asked me if he should get a letter from his employer; I mentioned that I suspected this type problem is mentioned in an employee policy manual. My theory is that he is not returning commission income, which would reduce his gross. It is more akin to having errors and omission insurance deducted from pay [or like symphony musicians, who have instrument insurance deducted]. My client prefers to take the money from his brokerage account and pay the employer with a one time check, not that changes the tax treatment, nor will it change the AMT problem. I talked to him just now, and perhaps the only break he will get is that his year is so bad, his gross wages may not exceed 90K and perhaps his income may slide too low for AMT!!! I doubt it. | |
RoyDaleOne (talk|edits) said: | 30 October 2009 |
| [81-1 USTC ΒΆ9195], Alvin and Alice B. Butchko, Petitioners-Appellants v. Commissioner of Internal Revenue, Respondent-Appellee , Gross income and adjusted gross income: Claim of right rule: Shortage payments: Itemized deductions:, (Feb. 05, 1981), Court of Appeals for the Ninth Circuit, (Feb. 5, 1981)
The tax law theory, or so says the Judges. | |
Death&Taxes (talk|edits) said: | 30 October 2009 |
| He was a race track teller, and deducted his shortages as EBE on Page 1 [back in 1974 certain EBE was a front page deduction], but the Court decided that they were an itemized deductions. The circumstances in Butchko do resemble what happened to my client. | |
