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CPA Provides Information On Calculating The Gain On Mechanics Bank Stock

David Howell
North Mississippi Herald
Water Valley, Mississippi

Dear Editor:

Another tax issue that has surfaced in the last few weeks is the question of how to calculate the gain on the sale of Mechanics Bank stock sold to BankFirst.

The first question is how and when was the Mechanics stock acquired? Three possibilities are, acquired by gift, inheritance, or purchase. Each scenario results in a different cost basis. While purchase is the most easily determined, gift and inheritance require a more complex calculation and some research into the history of the transaction itself.

If the stock was acquired by inheritance (transferred from a deceased owner’s estate), then the value is determined by the selling price of the stock on the date of death of decedent. Mechanics financial officer Nell Jobe has compiled a schedule of book values and known market values for the stock from 1969 to the sale date. For the years that a market value is not listed

I suggest using a value of 1.25 to 1.5 times book value. In my experience, this is what the stock usually sold for.
The basis (cost) of stock acquired by gift is determined by the cost to the person giving away the stock. This can be an almost impossible number to determine since many shares were held for decades before being given to other family members. The donor has since passed away and family records of the purchase are long gone. I suggest using the schedule from Nell Jobe and making your best effort to determine original cost.

The methods of valuation I have listed above are a very brief explanation of the “general rules” as we say in my profession, and I urge everyone struggling with this calculation to get help from a knowledgeable professional.
Joseph (Joe) Black, Jr. CPA

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