Roberta V. Rockefoot Court Case Summary

Today I spoke with Roberta concerning her request for tax assistance. Roberta wants to know if she can use the specific identification method to calculate the recognized gain of her sale of Color Inc. stock. She received a letter from the IRS stating that she should have used the FIFO method. Therefore, Roberta is looking to find out which method is correct to clear this matter up with the IRS.

Facts: In October 2016, Roberta instructed her stock broker to sell 6,000 shares of Color, Inc., with the highest cost basis. At the time of the sale Roberta had 15,000 shares of Color, all purchased at different times and different prices throughout a 3-year period. After the sale Roberta brokerage firm sent her a monthly statement about the sale,
Roberta broker never stated which shares of stock was actually sold. Furthermore, Roberta oral instructions never specified which specific shares of stocks she wanted to be sold.

In the relevant court case Helvering v. Rankin, 295 U.S. 123 (1935), the court decided: "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." Furthermore, Section 1.1012-1(c), Income Tax Regs., sets forth the rules governing the bases of stock sold by a taxpayer who has acquired blocks of stock on different dates or at different costs. Subdivision (1) of that section provides that the FIFO rule shall govern unless the lot from which the stock is sold can be adequately identified.

Based on the facts and circumstances of Roberta situation, it is rather evident that she must by default comply with the IRS finding that the FIFO method is the correct approach to calculating her cost basis. Had Roberta gave greater detail on which specific stocks she wanted sold and gave her broker clear instructions than she could have avoided the FIFO rule under Section