Question No. 1: Hold it! In your response to a question in your June 27 column regarding a gift of stock to a son, you said that the son's cost basis would be the same as the donor's. It was my understanding that the son's cost basis is determined as of the date he actually acquired ownership and control of the stock--i.e., the value of the stock on the date of the gift. Please check and clarify.

Question No. 2: Regarding the gift of stock to a son, how about capital gain and the date of transfer? Our friendly IRS tells me that long-term gain is lost on the date of transfer and the counting must start over. If the son is in a tax bracket over something like 20 percent, it is better for the parents to sell instead of the child.

Answer: It's nice to be able to say that I've gone over this again and the original answer was correct. In most cases, and, specifically, for the circumstances described in the reader's letter, the son picks up the cost basis held by the parents before the gift.

"Fair market value" was the rule on gifts through 1920--but I have a little trouble remembering that far back. About the only time it applies now is to a gift whose fair market value is less than the donor's basis on the date of the gift when the asset is later sold at a loss.

As to the second question: When the donor's basis is used as the cost basis for the recipient when he sells the stock, the holding period does not begin again with the date of the gift.

Instead, the holding period used to determine long vs. short term includes the donor's holding period. That is, the son starts to count from the date of acquisition of the stock by the parents. (The reference you requested is page 120 of IRS Publication 17 for 1982 tax returns.)

Q: I was very much interested in your reply on May 9 to a question regarding reports on interest and dividends on securities held by a broker in street name. This is the first year I have had such an account, and I have a further question: Will the brokerage house also provide information on Form 1087 about capital gains and losses?

A: Brokers do not provide information to their customers on capital gains and losses, even on securities held by the broker for the account of the client.

In some cases, both ends of the transaction--the "buy" and the "sell" may have gone through the account. But in other cases, the broker may be holding securities that were bought elsewhere and then delivered for safekeeping.

Beginning this year, brokers will be required to report to the IRS the gross proceeds to clients from security sales, regardless of whether the funds were paid to the client or retained in the account. The client will also be notified of the information transmitted to the IRS.

But this will not include gain/loss data. The easiest way I know for the occasional trader to keep track of capital gains and losses is to match the purchase confirmation and sale confirmation of the security.

Staple the two confirmation slips together, then write on the top slip the dates of purchases and sale and the gross and net amounts involved. Put the package in your tax folder, and it will give you all the information you need to complete Schedule D when you work on your tax return next spring.

Q: How are shares of stock purchased by reinvestment of dividends treated on the IRS Schedule D form when the stock is sold, since tax on the earned dividends already has been paid?

A: To figure the capital gain or loss on sale of such stock, you should add the total value of all reinvested dividends (previously declared as taxable income) to the cost of the original shares.

The result of that addition becomes your cost basis, against which you balance the proceeds of the sale. By including the amount of dividends in the cost, you avoid the possibility of any double taxation.