When the news broke Friday that Virginia First Lady Maureen McDonnell had purchased stock in Start Scientific – not once, but twice – without Governor Bob McDonnell’s knowledge, the accountant in me went straight to the tax implications.
Bill Burck, an attorney for the first lady, said she purchased 6,000 shares of Star stock on June 1, 2011.
At $5.18 a share, the purchase cost Maureen McDonnell more than $30,000
Burck said the first lady bought 522 more shares for nearly $2,000 on Aug. 2, 2011.
Burck said she sold the shares on Dec. 20, 2011, for $2.34 a share, a significant loss. But she used the proceeds, more than $15,000, to buy 6,672 shares on Jan. 20, 2012.
Based on the above, the sale resulted in a loss of about $17,818.52 (sales price $15,261.48 (6,522 shares at $2.34) less cost basis of $33,080 (6000 shares at $5.18 + 522 shares “for nearly $2,000”)).
The timing of the sale/repurchase is interesting because the wash sale rules. Those rules say that you cannot claim a loss of the sale of stock if “substantially identical” stock is purchased within 30 before or 30 after the sale. By waiting 31 days (12/20/11 – 1/20/12), the McDonnells were able to claim the loss on their 2011 income tax returns. I have to assume – because no other evidence exists – that this was treated on their return as a short term capital loss. Such a loss is deductible up to the amount of gains plus an additional $3,000. In other words, if this were the only capital transaction the McDonnells reported, they would have gotten a tax deduction of $3,000 and the remaining $14,819 would be carried over to 2012’s return.
I speculated Friday evening that, at the very least, McDonnell learned of the stock sale at the time he signed the returns (I was thinking perhaps October 2012, the latest date for which the returns could be timely filed), but today’s Washington Post article says he became aware of the initial purchase in November 2011.
By that time, the stock had plummeted in value and he urged her to sell. A month later, she did so, only to repurchase her shares, again without his knowledge, in January 2012, the person said.
The governor’s side says McDonnell did not know she had bought back the stock until nearly a year later, when in December 2012 the McDonnells agreed to disperse the shares among their five adult children.
I’m not buying it that he urged her to sell because the value had dropped. Sure, that may have been part of the decision, but I think reporting the holding on his financial disclosure reports was also a part of it. This is an example of the proverbial “killing two birds with one stone.” By not owning the stock on 12/31, no reporting. And somebody was advising Maureen to wait more than 30 days to repurchase.
And I’m not buying that the governor only knew of the initial purchase in November 2011.
They say he [Gov. McDonnell] learned of a $50,000 loan Williams made to his wife in May 2011, about two weeks after the money arrived, by which time it had been spent.
About $30,000 went to purchase Star stock intended for the McDonnell children and the rest to pay down debt.
Two things don’t add up here.
- He became aware of the loan in May 2011, but he didn’t ask her where she spent the money?
- The stock wasn’t purchased until June, but he became aware of the loan in May “by which time it had been spent”?
I suspect it’s stuff like this that keeps the feds looking for more, despite letters of support from folks like the Virginia Beach mayor. (Who in the heck is advising the mayor?)