RSU Cost Basis Errors: Why You May Be Taxed Twice

When restricted stock units vest, the value of the delivered shares can already be included in wages on Form W-2. The later issue is separate: a brokerage sale form may report a basis that does not include that already-taxed compensation. If the return follows that low or blank reported basis without an adjustment, the same RSU value can be pulled into taxable income again as capital gain.

Lana Kurilova Rich, PLLC works with individuals who discover a cost-basis error after filing, or after receiving an IRS notice questioning a reported stock sale, combining tax return preparation with representation before the IRS on the resulting notice or amended return.

How RSUs Are Taxed (Quick Primer)

An RSU is a promise from an employer to deliver company stock once conditions, usually continued employment for a period of time, are met. Nothing is taxed at grant. At vesting, the fair market value of the delivered shares is treated as ordinary compensation, reported on Form W-2, and subject to withholding.

That vest-date value also becomes the shares' cost basis going forward.

What "Cost Basis" Means for an RSU Sale

Cost basis is what you are treated as having already paid for an asset; only the difference between the sale price and that basis is a capital gain or loss. For RSU shares, the correct basis is the fair market value on the vesting date, the same figure that was added to your W-2.

If shares are sold shortly after vesting, the resulting capital gain or loss is often small, because the sale price is close to the vest-date value already taxed as income.

Why Brokers Often Leave RSU Income Out of the Reported Cost Basis

Since a 2014 change to federal broker cost-basis reporting rules, brokers are generally required to report to the IRS only the cash the employee actually paid for the shares. For RSUs, no cash was paid, so the 1099-B often shows a basis of zero, leaves the basis box blank, or marks the basis as "not reported to the IRS." This is not usually a brokerage error so much as a gap between what the regulation requires the broker to report and what the taxpayer's real basis is.

Many brokers provide a separate supplemental RSU or equity-award cost-basis statement showing the compensation-adjusted basis. When the supplemental figure differs from the basis appearing in Box 1e of the Form 1099-B, that difference is the issue the return must address.

The Result: Double Taxation on RSU Income

If the return is prepared using the 1099-B's uncorrected basis, most or all of the sale proceeds appear as a new capital gain, on top of the compensation income already reported on the W-2 for the same shares. The same economic value is effectively taxed twice: once as wages at vesting, and again as a capital gain at sale.

Form 1099-B: What to Check Before You File

This is a prefiling document check. Use the 1099-B as an information report, then reconcile it to the employer equity records before entering the sale result.

Form 1099-B proceeds

The sale amount the broker reported.

Box 1e of the 1099-B

The basis the broker reported, which may exclude vesting income.

Supplemental RSU or equity-award statement

The compensation-adjusted basis for the same shares.

Vesting-year compensation record

Whether the vesting income appears in wages.

If the broker basis and supplemental basis differ, the return generally needs an adjustment rather than treating the broker basis as final.

Correcting It: Form 8949, Schedule D, and Code B Adjustments

The IRS-approved fix does not mean ignoring the 1099-B. On Form 8949, the proceeds and the broker-reported basis are entered exactly as shown on the 1099-B, adjustment code B is entered to indicate the reported basis is incorrect, and the correction amount is entered as a negative adjustment equal to the additional basis, the compensation income already taxed.

That adjusted figure carries to Schedule D and produces the correct gain or loss. If a return was already filed using the uncorrected basis, the fix generally requires an amended return, Form 1040-X, with a corrected Form 8949 and Schedule D attached.

Getting an IRS CP2000 Notice About an RSU Sale

A CP2000 is a proposed adjustment, not a bill, sent when the income the IRS has on file, in this case a 1099-B showing stock sale proceeds, does not match what was reported on the return. It commonly happens when a Schedule D reporting the RSU sale was omitted entirely, or the basis reported was not corrected.

The response deadline is 30 days from the notice (60 days if the recipient is outside the United States). If you agree with the proposed change, you sign and return the response form. If you disagree, and the correct basis eliminates or reduces the proposed gain, check the disagree box and submit a signed statement with supporting documentation, such as the W-2 showing the vesting income and the broker's supplemental cost-basis statement, by the deadline shown on the notice.

Not responding by the deadline results in a Statutory Notice of Deficiency.

RSUs Are Not Stock Options or ESPPs

RSUs, stock options, and Employee Stock Purchase Plan shares are taxed under different rules, and the cost-basis mechanics described here are specific to RSUs. A stock option's basis includes the exercise price paid, which most RSUs do not have; an ESPP has its own discount and holding-period rules.

Applying RSU basis logic to a stock-option or ESPP sale can produce the wrong answer.

What Should You Do First If You Think Your RSU Cost Basis Was Reported Incorrectly?

1. Locate the broker's supplemental RSU or equity-award cost-basis statement for the sale in question.
2. Compare it to the basis shown in Box 1e of the Form 1099-B.
3. Confirm the vesting income for those shares appears on the corresponding year's W-2.
4. Determine whether the affected year's return has already been filed.
5. Prepare the Form 8949 adjustment, or an amended return if the year was already filed.
6. If an IRS CP2000 notice has already arrived, respond by the deadline shown on the notice.
7. Address any resulting balance, penalty, or interest once the corrected figures are known.

An RSU Cost Basis Error Is a Reporting Problem, Not a New Tax

The income was taxed once, at vesting. A corrected Form 8949 and Schedule D, or a response to a CP2000 notice supported by the W-2 and the broker's supplemental statement, generally resolves the discrepancy without creating a second tax on the same income.

Lana Kurilova Rich, PLLC prepares corrected and amended returns and represents clients in federal tax debt and IRS notice matters arising from equity compensation reporting. The firm is based in Bellevue, Washington, and represents individuals throughout the United States in federal IRS matters. If you believe your RSU cost basis was reported incorrectly, or you received an IRS notice about a stock sale, start with the document comparison in the checklist above.