My wife's parents have all of there after tax retirement money at Ameriprise. They asked for my help about 6 months ago and I told them to move the money to Vanguard, which they did. Yesterday I just found out they moved it back
. Don't ask my why because I didn't ask them why and don't plan to.
The only reason that I know is because of the following situation which I need help with. They got a notice from the IRS stating that they underpaid their 2010 taxes by $7500. They were about to pay the tax when coincidentally my wife and I came by for a visit and they mentioned it to me. It took me all of 30 seconds to figure out that they didn't report the sale of their Ameriprise "certificates" to the IRS when they moved the money to Vanguard so of course the IRS assumes the cost basis is zero and says they owe tax on $20000 or somewhere around there.
Now to the dilemma. They don't know what their cost basis is. They don't even know what the words "cost basis" mean. I had them call their Ameriprise rep and here is a quote (I paraphrased some of the quote) from paperwork that was sent to them.
"A sale or surrender of an Ameriprise certificate is a redemption of a security and must be reported on schedule D. When completing column (e) of schedule D use the amount of the redemption from the 1099-B. When completing column (d) of schedule D, "cost or other basis" use the same amount. You may manually add to schedule D that "the certificate was withdrawn at par producing no capital gain or loss"".
Does this make sense? And will the IRS accept it? I don't believe they made much profit on this money but I also don't believe there is "No capital gain or loss".
There are 4 transactions for 2010. One large one for over $20000 and there small ones for like $375, $125 and $125. The large one appears to be their transfer to Vanguard and maybe the others are interest or dividends? Thoughts?