Companies Themselves Can Help You Untangle Phone-Stock Capital Gains Snarl

Q: In a recent article you discussed the impact of the 1984 divestiture of AT&T; Corp. and the subsequent mergers and spinoffs of the Baby Bells and AT&T; on those of us who hold AT&T; stock. Your point was that without careful record-keeping, shareholders face a nightmarish job of determining their taxable gains when they sell any stock of any of the telecommunications companies involved in these transactions.

Can you offer some advice on how we go about getting the information we need? And specifically, can you tell us how we should value the shares of Lucent Technologies and NCR, the two companies that AT&T; spun off a few years ago? --P.J.

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A: In 1984, under a court order sought by the U.S. Justice Department, AT&T; divested itself of its seven regional telephone companies. AT&T; shareholders at that time were issued shares in each of those Baby Bells, in addition to the shares they held in the former parent company.

For help in determining the initial value of those shares, in essence their tax bases, you should contact AT&T; shareholder services at (800) 348-8288. You may also get valuable information on the AT&T; Web site at https://www. att.com/ir.

Since the divestiture, there have been two mergers between Baby Bells, as well as a proposed third combination that is pending. Nynex was swallowed by Bell Atlantic, and SBC Communications acquired Pacific Telesis Group. SBC is now seeking to merge with Ameritech.

For information about the values of shares in any of these companies, you should call the shareholder services of the respective corporations. SBC can be reached at (800) 351-7221. Bell Atlantic can be reached at (800) 235-5595, and Ameritech can be reached at (800) 984-0248.

In 1996, AT&T; spun off two operating units, NCR, its computer maker, and Lucent Technologies, its research arm. When Lucent was divested on Sept. 30, 1996, AT&T; shareholders received slightly less than one share of Lucent for each three shares of AT&T; they held. The portion of the shareholder’s original tax basis in AT&T; shares that was to be allocated to Lucent is 27.99%.

On Dec. 31, 1996, NCR was spun off, and AT&T; shareholders received one share of NCR for each 16 shares of AT&T; they held. The tax basis percentage of AT&T; shares that was to be allocated to NCR is 4.77%. The remaining 67.24% of a shareholder’s original tax basis in AT&T; remains with that stock.

(And complicating things a bit more, earlier this year Lucent Technologies stock split two-for-one. So shareholders who hold stock from the 1996 spin off should cut the per-share tax basis in half.)

Given the complexity of these multiple transactions, those selling shares affected by these maneuvers might be wise to consult a tax professional when they prepare their tax returns.

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Q: My wife and I plan to sell our home this year and believe that the new $500,000 capital gains exclusion on residential home sales will wipe out any taxable gain we might have from the deal. However, I would like to convert my traditional IRA to a Roth IRA and am wondering if the home sale, which will generate a considerable gain (albeit not a taxable one under the new law) will cause me to exceed the $100,000 limit on adjusted gross incomes that applies to taxpayers converting to a Roth. Will the sale affect my adjusted gross income?--R.A.

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A: You can relax. If you do not have a taxable gain from your home sale, your adjusted gross income will not be affected.

Dean Cheatham, an enrolled agent in Oceanside, Calif., says the details of your home sale will be reported to the Internal Revenue Service on Form 2119.

On this form you will determine if you have taxable income from the transaction after subtracting the capital gains exclusion ($500,000 for married couples and $250,000 for singles) from your proceeds. If there is no taxable gain, then you will not transfer any income from the sale to Form 1040 on which your adjusted gross income is finally computed. If you do have a gain, even after making the exclusion, that figure will be reported on Form 1040 and will increase your adjusted gross income.

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Q: If a taxpayer donates stock purchased 20 years ago for $10,000 but now worth $100,000, he is allowed a tax deduction on the fully appreciated value of the stock. But if those same shares of stock are held in a Keogh plan and the plan holder wants to donate them to the same charity, what happens?--J.F.

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A: The tax consequences are different. With a donation of appreciated assets held in a Keogh plan, the assets must first be removed from the plan though a distribution to the plan holder. And at this point the distribution is taxable to the plan holder. You may still donate the stock to a charity and take a charitable deduction on your tax return, but you will have paid taxes on the full amount of the gift.

If the shares are not in a Keogh, but are simply held by a taxpayer, they can be donated directly to the charity and no taxes are paid by the donor on the accumulated appreciation.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi@latimes.com.