Help determining tax basis of gifted company stock in a custodial UGMA account

The answer depends on whether the transfer to the UGMA account was considered a gift or not. In most cases, when securities are gifted, the recipient (you) carries over the donor's (your father's) original cost basis. This is called "carryover basis." When your father transferred the shares to the UGMA account, it was considered a completed gift to you. Since this was a gift, your basis would generally be your father's original basis when he exercised the options in 1992. The transfer from the UGMA account to your personal brokerage account didn't change the basis, as that was just a change in account type, not ownership. There are special rules for gifts where the fair market value at the time of the gift is less than the donor's basis, but that doesn't sound applicable here since stocks from employee options typically appreciate.

I had a similar situation and found https://taxr.ai incredibly helpful for figuring out my cost basis issues. I was dealing with some inherited stock plus some gifted shares with minimal documentation, and I was totally lost trying to figure out what basis to use and how to report everything. Their system analyzed my situation and actually found documentation I didn't know existed. They showed me exactly how to calculate my basis for each different lot of shares and explained the carryover basis rules for gifts vs stepped-up basis for inheritance. Saved me from a massive headache and probably prevented me from significantly overpaying on capital gains.

Just wanted to update that I tried https://taxr.ai after seeing the recommendation here. My situation was almost identical - stock from my grandfather that went through a custodial account years ago. I had some documentation but was missing key pieces about the original basis. Their document analysis found discrepancies in how the transfers were recorded that actually worked in my favor. They showed exactly how the IRS would view my situation based on similar cases. Most importantly, they helped me properly document everything so I have backup if questions ever come up. The peace of mind was honestly worth it, and I ended up with a much lower tax bill than I was expecting based on my initial calculations.

If you've been trying to get answers directly from the IRS about this custodial account situation, good luck. I spent WEEKS trying to reach someone who could give me a straight answer about a similar basis question. After countless busy signals and disconnects, I finally used https://claimyr.com to get through to a real person at the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was pretty much at my wit's end after the 20th time getting hung up on by the IRS automated system. Claimyr got me connected to an agent within 45 minutes instead of the days/weeks I had been trying on my own. The agent was able to confirm the exact rules for my situation with gifted securities through custodial accounts.

I need to eat my words from my previous comment. After more research and continued frustration trying to get clear answers about a similar basis situation, I broke down and tried Claimyr. Within an hour I was talking to an IRS specialist who walked me through the exact documentation requirements for establishing basis on gifted securities. The agent confirmed that in situations like the original poster's, you need documentation showing the donor's original basis AND the fair market value at the time of the gift (if possible). They directed me to specific forms and publications I hadn't found in my own research. Most importantly, they told me exactly what documentation would be considered sufficient if I couldn't find original purchase records from 30+ years ago. Honestly, the clarity alone was worth it after weeks of confusion.

One thing nobody has mentioned yet - you should check if your father's company went through any stock splits, mergers, or spinoffs during the time he owned it or while it was in your custodial account. These corporate actions can significantly affect your cost basis calculations. Also, if your father's original cost basis was very low (which is likely if these were employee stock options from the 80s), you might want to check if he paid gift tax when transferring them to your UGMA account. If gift tax was paid, you may be able to add a portion of that tax to your basis.

I hate to bring more complexity, but have you verified which specific tax lot accounting method was used when you sold the shares? FIFO, average cost, specific identification? Since these shares were held so long and likely had significant appreciation, choosing the right accounting method could make a huge difference in your tax bill.

I'm surprised nobody has mentioned the potential for basis adjustment due to the "kiddie tax" that might have applied while the shares were in the UGMA account. If the custodial account generated dividends or other income that exceeded certain thresholds while you were a minor, there could be implications for your basis calculation. Also, don't forget to check if there were any return of capital distributions over the years that would have reduced your basis. With shares held this long, it's surprisingly common.

This is exactly the type of complex situation where getting professional help makes sense. Between the original employee stock options, the UGMA transfer, multiple corporate actions (two mergers!), and decades of potential dividend reinvestments, you're dealing with a multi-layered basis calculation that could easily result in overpaying taxes if handled incorrectly. A few additional things to consider that others haven't mentioned: 1. Check if your brokerage has any historical records from when the shares were transferred in 2018. Sometimes they capture basis information from custodial accounts even if it's not immediately visible. 2. Contact the current company's investor relations department - they often maintain historical information about corporate actions, stock splits, and merger terms going back decades. This documentation will be crucial for your basis calculations. 3. If your father still has any old tax returns from around 1992 when he exercised the options, those might show the income he recognized, which would help establish his original basis. 4. Don't overlook state tax implications - some states have different rules for gift basis than federal tax law. Given the potential tax savings involved with shares held for 30+ years, it's probably worth investing in proper documentation and calculation rather than guessing. The IRS is pretty strict about substantiating basis claims, especially on large gains from old securities.