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You cant help those who wont help themselves
Old 03-03-2012, 10:19 AM   #1
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You cant help those who wont help themselves

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 You may manually add to schedule D that "the certificate was withdrawn at par producing no capital gain or loss"".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?
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Old 03-03-2012, 10:34 AM   #2
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"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".
This how I used to treat my Ameriprise certificates in the past (per their instruction). Never had a problem with it. Like a regular bank certificate, the interest you earn on the certificate is taxable, but you redeem it at par hence no capital gain or loss. If it was an early redemption, don't forget to deduct the early withdrawal penalties.
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Old 03-03-2012, 10:35 AM   #3
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I see no reason for an IRS objection.
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Old 03-03-2012, 10:46 AM   #4
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I dont know how much they originally invested with Ameriprise but they liquidated the account and sent the money to Vanguard. Are you saying that there is no tax due? How can that be? Isn't the money invested in some sort of securities that gained or lost money while it was there just like any other mutual fund or stock?

Someone said the interest earned on the certificate is taxable. How is that reported? Is that the small $375 and $125 amounts?
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Old 03-03-2012, 10:52 AM   #5
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I dont know how much they originally invested with Ameriprise but they liquidated the account and sent the money to Vanguard. Are you saying that there is no tax due? How can that be? Isn't the money invested in some sort of securities that gained or lost money while it was there just like any other mutual fund or stock?
Ameriprise certificates work pretty much like CDs (although they are actually complex securities).

You earn interests on them every month and, at the end of the year, you pay taxes on the interests you have received. When you cash them in, you do so at par. So the amount shown on the 1099-B form (redemption amount) is what they invested in the certificate plus the reinvested interests (which happens to be the costs basis). Just like there is no capital gain or loss when you redeem a CD, there is no capital gain or loss when you redeem the certificate. So they only owe taxes on the interests they earned during the year when the certificate was redeemed - assuming they paid taxes on the interests earned during previous years.
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Old 03-03-2012, 12:11 PM   #6
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They never received a 1099-B for 2010 and when they logged onto the account online, it shows 1099-Bs for 2009 and 2011 but not for 2010. They do have a transaction confirmation showing the one large redemption for over $20K, but the IRS shows that they didn't report 4 transactions from Ameriprise. The large one, one for $375 and two for $125

So I have to help them account for the 4 transactions. Are the three smaller one interest payments or would they have had to make some smaller withdrawals at some point. You would think I could ask my father in law these questions but trust me, he wont know the answers.
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Old 03-03-2012, 12:23 PM   #7
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You only receive a 1099-B when you redeem a certificate so, if they didn't redeem one in 2010, they would not have received a 1099-B for that year.

The large redemption for 2011 is easy to account for. The smaller ones sound like interest payments that should show up on 1099-INT forms. If not, I have no clue...
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Old 03-03-2012, 12:27 PM   #8
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Don't they get account statements from Ameriprise on these investments (or online access to account statements) that would answer your questions? Or perhaps you could jointly (you and FIL) call Ameriprise and talk to someone who could give you the answers.
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