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“Howard deal here from the general agency and today. I will be talking to you you about usual reasonable and customary charges usual reasonable and customary charges is the amount for services in a geographic area based on what other providers with the same training and experience and specialty are charging for the same or similar service. Basically what that statement means is if a patient goes to see a non network provider and the non network provider is charging more than the going rate the usual reasonable customary charges. The patient is subject to those that s above and beyond the deductible and coinsurance amount.

Now plans that i have non network benefits. Our ppo plans and indemnity plans ppo plans give the patient the option of going in and out of network. If a patient decides to go non network. Reasonable and customary will apply that applies to both dental and health insurance policies indemnity plans both medical and dental have will pain on network services.

But anything above is the usual reasonable customary charge. The patient is responsible for that s in addition to the deductible and coinsurance so avoiding and minimizing the usual reasonable and customary charges best thing to do is stay in network. Most important stay in network to avoid those charges next do your homework and we ll go over a little bit about that here later on to the slides. Doing your homework.

If you have a scheduled surgery. Actually will do it now if you have a scheduled surgery and you re going to a network provider network hospital. It s important that you communicate to your surgeon. That you only want to have people that are in your network.

Assisting him like an assistant surgeon. The radiologists anesthesiologists and pathologist those folks you actually want to have in network and you might want to possibly communicate with them and make sure that they re going to be the one that s assisting in your case. If you do have a reasonable and customary charge. You can contact your insurance company for help because most people feel uncomfortable about contacting their doctor about additional charges that are on their bill.

That s he called the insurance company or call your broker. They can they can help with the billing question and see if it is a true reasonable and customary charge or just a billing error. You can also contact your provider. With the billing questions and ask them if you have any questions on your bill.

It s important that you ask them what the what the bill is for now the network. When you re staying inside the network. Everything seemed as well. However there are some providers you ll run into inside the network hospitals at our non network providers.

So let s say you go in for a surgery and not in the network hospital you re seeing a network provider. But the anesthesiologist is not network. That is an additional deductible additional coinsurance and you re subject to reasonable and customary pathologist radiologist and assistant surgeons are the same way if you re going in through an emergency room. Sometimes the emergency room doctors or non network.

You don t really have a choice over that if you run into one of those problems you need to contact your broker or the insurance company. And see. If you can work them work out those charges now claims can be expensive. So before you have a scheduled surgery contact your broker.

If you have any questions. If you don t have a broker you can contact us and we can locate a broker for you reasonable. And customary charges is one of the most common charges that a patient will run into that are unexpected. So it s very important that you have a broker.

If you don t have a broker like i said contact us. And what we could locate one for you and your in your area. That s it for gonna we re gonna be dealing with non tax ability. What is the basis of stocks received for the shareholder now the shareholder receive stocks what s their basis.

Because now they have all stocks now to receive additional stocks you remember i used used to 500 years and forehead. Lectures. Now you have 600 well if the distribution is non taxable. And this is what we are dealing with the shares receive.

If the shares receives are identical identical. Means you have class a common stock. And we gave you class a common stock. Okay so if the she receives are identical to the sheer p previously owned the basis equal to the cost of the old chairs divided by the total number of shares everybody shares are not identical.

So if you had common stock and they gave you preferred stock or if you had common stock. A. They gave you common stock b or c. What we re gonna do we re gonna allocate the basis of the old stock between the old and the new based on the relative fair market value and i hope you know where a lot of fair market value is as an accounting student.

You should know what this term means because it applies in many situation in a basket purchase and how we allocate revenue and how we allocate stock dividend and don t worry i m gonna talk about this okay the holding period include holding period or formally held stock. So that s what what the holding period is basically the holding period of the formally held stock. If the tax of the stock dividend is taxable basis of the new shares is the fair market value whatever. The fair market value is and the holding period start on the date of the receipt now if the transaction is taxable.

So let s take a look at a couple examples to see how this all fits together green corporation. Declare a 10 stock dividend. When it starts selling at 100 per share as a result of the stock dividend. The per share stock value declined to 90 in ninety one cent.

So green market capitalisation remained the same. But it spreads over ten percent more shares so simply put they declare a 10 evident. What s gonna happen we the the market value per share was 100 what s gonna happen it s gonna be reduced because we re gonna have to spread it over more. Sheer so jennifer owns 100 shares of green with the basis of.

1100 they re 1100. So there we go so she owned one thousand and one hundred shares and she paid for them okay so she paid for them 1100..

The basis is one thousand one hundred and she owns one hundred years. So what is her cost basis per share. The cost basis per share. Is.

11. Jennifer received ten shares as a result of the new stock dividend. Now rather than 100 cheers. Now.

She has because she received temple. Ten ten new ships. She got one 110. So it s what s gonna happen how does the stock dividend.

Affect. Jennifer. The stock dividend does not generate gross income and has no impact on green green corporation taxable emp before the stock dividend jennifer had 100 shares with the basis of 11. I already told you this after the stock dividend.

Jennifer has the same total basis. She did not had to invest any additional money the same basis 1100. But she has now instead of off 100 years. She s gonna distribute this over 110 shares.

So the basis is per share per share is ten dollars. So the basis per share is ten dollars. So what happen is the basis are spread over the new and the old okay assume the same information except that green corporation. The clear 441 stock split if it s a stock split.

It s technically the same now 441. The jennifer will own 400 shares. So now 1100 and they give her four four stocks. But is when they give you additional shares for example 441 for each year.

You would receive an additional three basically you. Have four now you have. 400. Shares 1100.

1100 divided by 400 chairs your basis per. Share is 275. So basically you you are still invested by 1100 years that s the only amount that you invested. However what happened is it s like a pizza pie.

Okay. You can. This is an 8 b. 8.

Slice. Pizza pie 1. 2. 3.

4. 5. 6. 7.

8. Now. What you can do you can split the speeds of pie into and to double it into 16 into 16 pieces right. Nevertheless.

It s still the same pizza pie. So the 275 all what you did is you as you spread the basis. The 1100 over more shares. But nothing really changed you still have the same amount of shares.

Let s take a look at an example when you receive at different classes of. Shear okay gail bought 1000. Shares of common stock two years ago for ten thousand dollars so let me just before we proceed let me do the red so. 10000 divided by 1000.

Shares. So your cost basis is 10 per share. And the current here she received non taxable preferred dividend of 100 years. So they gave her an additional 100 years.

But they happen to be. Preferred the preferred had have a fair market value of 1000. And the common on which the preferred is through distributed has a fair market value of. 19 so the common stock has a.

19000 fair market value the preferred stock has. 1000 fair market value together equal to 20000..

Now to find that a lot the fair market value for each what we do is we ll take. 19000 divided by 20 end 1000. Divided by 20 now i know 1 20 equal to 5. So this must be 95.

So what we do we ll take the basis. We ll take the. Basis the basis and the stock oops the basis and the stock so. 10000 i use a different color 10000.

Times. 95. Percent is nine thousand five hundred and that s the common that s the basis for the common in the ten thousand times five percent that s five thousand. I m sorry that s five hundred not five thousand five hundred and that s the basis for the preferred notice the total still ten thousand basically what we did is we use the relative fair market value so use the fair market value.

Okay. So. The common stock. Represent ninety five percent and in terms of market value and the preferred stock represent.

5 of the total fair market value okay. So this is when you are with this is when you receive a different type of class of socks let s take a look at another example. What are the tax consequences to euclid from the following independent. Event euclid bought 500 shares of common.

Stock five years. Ago at. 50000. So let me see how much did they pay per share 50000.

Divided by 500 shares. They paid per share 500. This year. They received 20 new shares of common stock as a non taxable dividend.

What is the basis for this. Event well they did not pay anything there for the 50000. Still the amount that they invested except. Now that they have five hundred and twenty shares or what we have to do nice to take 50000.

Divided by 520 their basis is 96. Dollars and 15 cent. All right assume instead that we receive a none taxable preferred dividend of 20 shares now we still have 500 common. But they gave us 20.

The preferred. The preferred has a fair market value of 5000. So the preferred stock has a fair market value fair market value of 5000 and the common has a fair market value of 75 oops not 500. 5000 and common stock has a fair market value of 75.

Said together. They have a fair market value of 80. Now we have to do we have to find out what 75 of. 80 what is 75 divided by 80 that s 93.

Percent. Ninety. 375. That s ninety three point seven five and this should be six point two five.

If my math is right yes. Six point two five that s equal to 100 percent. Now what we do is we invested originally how much did we invested. We invested.

Fifty thousand so of the fifty thousand we multiplied ninety three point seven five and that s equal to forty six thousand eight hundred and seventy five this is the basis for the common for the. Preferred it s fifty thousand times 625. Which equal to 3000 125. And this is the basis for the preferred stock.

This is the basis for the common stock now let s talk about the stock rights first of all what are the stock rights. What are they maybe you never heard of them maybe. That you should buy at this point. You should have took intermediate accounting stock rights is when they you buy the stock in addition to the stock they give you a right some sort of a privilege to allow you to buy additional shares of stock either too as as an incentive or oftentimes to keep your proportionate ownership.

So of the issue new shares you have the right to buy those new shares. So. Easy. The tax treatment of stock right is the same as stock dividend.

What does that mean they could be taxable. They may not be taxable. If the stock rights are taxable if they are considered taxable you have to recognize income and what is the income that you have to recognize well you have to recognize income. The fair value of the stock of the rights received so these these rights when they give you the right they have a value you know if the value could be eight dollars could be ten dollars could be 100 dollars.

So you can sell them separately. So if they are taxable every right is has a fair market value and if you received let s assume you the the value is ten and you receive one hundred well guess what you have 1000..

And income okay your basis equal to the fair market value because if they are taxable you pay the taxes that becomes your basis. If exercise exercise mean if you actually buy the stock. The holding period began on the date of the exercise. So you re holding period of the stock because the rights give you the right to buy the stock.

So the holding period of the stock will start when you buy and the basis of the new stock is the basis of the right whatever the basis of the right is if you paid whatever anything for the basis of the right. Plus. Any consideration giving plus whatever you paid for the stock. Okay.

This is the basis and the new stock. If the stock rights are non taxable. So now they are non taxable. If the value of the right received is less than fifteen percent of the value of the old stock your basis is zero.

If they are non taxable. So if the value of the right the right has a value if it s less than fifteen percent of the old stock you look at this the value of the stock you look at your right. If the value is less than fifteen percent. You have zero.

Now you also have the right to say you know what i don t want my basis to 0. To be 0. Election have a available which allows the allocation of some basis or formerly health start to rights. So you could you could you could have some basis.

If the value of the rights is 15 percent or more the value of the old stock and the rights are exercised or sold. They must allocate some basis and formally held stock to the right and again the best way to illustrate this is to actually show you an example you know if you if you happen if you if less than fifteen percent. More than fifteen percent. Whatever you took the election or not so let s take a look at this example to illustrate those concepts the corporation with common stock outstanding declare anon a non taxable dividends payable in rights to subscribe to common stock so they gave you rights is a form of dividend.

But it s non taxable each right entitles. The holder to purchase one share of stock for 90. So for each right you have you can buy the stock at 90 one right is issued for every new shares of stock owned. So if you have two if you have two stocks for every two stocks they gave you one right okay.

For every. Two stocks they gave you one. Right. Fred.

Owns. 400 shares of stocks purchased two years. Ago at 15000. Serfs.

If a fred has 400 years. It means. Fred. Has 200 rights.

It s okay so fred has 200 or because for each stock for every. Two stocks you receive one right okay. Let s see 200. Writes he.

Exercises oh well hold on a second he bought the shares at. 15000 so the basis t equal to 15000. In the stock at the time of the distribution rights has fair market value of the comment at the time of the distribution of the rights. The market value of the company stock is 100 per share.

Okay and the market value of the right is 1. So each of these rights is worth. 8 so simply put all the rights are worth 1600. Okay so fred receive 200.

He exercised let s see. What he did he exercises. 100 rights and sell the remaining 100 rights later for 9 per. Share.

So what he did he exercised 100 rights and he bought the shares in the remaining 100 rights. He sold them one at 9 per. Piece. Okay now fred need to allocate the cost of the original.

Stock which is 15000. To the rights because the value of the rights is less than 15 of the value of the. Stock because the value of the rights is 56. 1600.

I already showed you how to. Compute this and the value of the stock is. 40000 why. 40000.

400. Shares..

He owns. 400 shares and the value per share equal. To. 100 therefore the value is.

40000 in 1600 over 40000 is less than 15 equal to. 4. Okay if fred does not allocate his original stock basis to the right the tax consequences are follow so he chose not to so basis of the new stock is 9000 okay. So what happened is this he exercised 90 per share.

He bought 90 per share. He bought the stock at 90. That s the right gives you that right to at 90 times 100 years. So the basis in the new stock is 9000.

Because he bought each share for 90 and the whole thing period began on the date. That stock were purchase now he also sold 100 years100 right. I m sorry. The sale of the right produces long term capital gain of 900 100 rights.

Times. 900. So the holding period of the right start with the date of the original shares 400. When they were acquired therefore we have a long term capital gain.

So what he did he assumed now under those circumstances. He assumed the basis or 0. Because you can assume that since the rights are less than 15 of the value of the stock. Okay a thread elect to allocate the basis to the right now he wanted to allocate basis to the right here s how we do.

It so the basis of the. Stock we have 40000. Value of the stock divided by 40 1600 was the 40 1600 coming from it s the original. Plus the original cost.

Basis. Plus the 1600 all multiplied by. 15000 so simply put we took the basis. 15000 and the basis of the stock we multiplied by 40000 divided by the old basis plus the right 41000.

600. Okay and the basis of the new stocks now the basis and the new stock is 14000. 423 used to be 15. It went down because we have additional basically yes we had more value 40.

1600 the basis of the right is again 15000. Times. It s basically the relative fair market value 1600 divided by 40 1600. Okay.

So basically there are each right is worth each right is worth 500. The basis of the right not needed each one the basis of the rights are 577 dollars. Now we have 200 right we can figure out the basis per right. If you want to know how much each right is worth if we set the basis is 577 divided by 2 hundred each right is worth two it to 85.

So 577 divided by 400. So each one is worth each right is worth two eighty five eighty and sorry eighty eight point five. Okay now when fred exercised the right his basis in the new stock well when his basis in the noose and the new stock is ten thousand plus. Plus.

The two eighty eight fifty remember the cost of the stock is 100 times ninety because he bought one hundred years and ninety dollars plus. The basis and the stock therefore his total basis in the new stock is 9280 those are the new stocks those are the 100 new shares. Okay so it s around nine. What so what s the value per.

Share. Nine let s say 90 to 88. 92. 885.

Oops. 92. Eighty. Eight point five.

Divided by one hundred ninety two dollars in 88 cents. So the value the cost basis of her new stocks 92 dollars and eighty eight cent okay the sale of the right would produce a long term capital gain of six hundred and eleven dollars why six hundred and eleven dollars well he sold each right for nine dollars. So he received nine hundred dollars. That s the amount received and his basis is 288 fifty.

Because the total were 577 for the 200 so for 100 rights. That s half that s two eighty eight fifty and he sold each one for nine hundred therefore. There is a gain of six 1150 so this is what happened if you allocate basis for the new right okay what s gonna happen you re gonna have basis for the new right basis for the new stock and you have to allocate them based on the relative fair market value. If you have any questions any comments about stock right stock dividend by all means please email me if you happen to visit my website for additional lectures please consider donating if you re studying for your cpa exam as always study hard ” .

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