Cost Basis runaround?

[edlbym]

Hello,

I hope I'm posting in the right section. I created this account years back, posted maybe once but haven't in a long time..if there's a better section to post, please let me know..

Ok so I've been looking up Cost Basis since I may need to sell some stocks...some I had long before I transferred these mutual funds to my online broker account...and the online broker never bothered to keep the cost basis (funny how they were telling everyone how "we're in the 21st century! go online! the virtual world is great! high technology!" but never bothered to keep the cost basis)

Well no harm was done since I looked up the old mutual fund, and, after some work, finally got the numbers from them...another one, another old mutual fund, I don't have the numbers back but they cooperated and said they will send to me..

But this one old mutual fund, claims they don't have it. I can give you the longer story for entertainment (or for me to vent...) but they claim they don't have it...they are wrong on so many levels:

1. they say ask the online broker...who of course doesn't have it for any mutual fund

2. they say they don't have it but, about 18 months ago, I called this same mutual fund and they gave me cost basis for a few other funds (not the fund I need it for now..I had several funds with them) so they can't even pretend they never had it..

I call and I get "we'll look into it" and "we'll call you back" and then "call us" and I call and I get back to 1 or back to "we never had it, we never kept it" (even though 18 months ago they had it, while my shares were transferred in 2008 or so, to the online broker, yet the Mutual Fund had my into still in 2013 but in 2015, for the last fund I need info for...they claim "we never had that into, ask the online broker") and on and on...there are a few chapters more of silliness but this is probably already more detailed than you need to know...

Probably they lost it and don't want to admit (they did buy out another company that originally had the funds, and maybe got the Cost Basis for all the mutual funds except this one single fund from the old company)..

whatever the reason, I wonder, first, what my options are? and two, if I can't find anything, what should I do when I file my 1040 for the year (which might be 2015) when I do sell, what does IRS accept? reasonable fair guesses?

Thanks!

 

[davismills]

I'm in the same boat with some stocks I sold in Jan of this year. I've got scraps of acct statements that my wife, thankfully, kept. Etrade claims they only kept records for 10 years. I'm making a best guess on purchase price/date and just averaging as these were dividend paying stocks. It's the best I can do at this point. I'm saving all the scraps of paper during the potential audit years.

 

[LOL!]

Before 2012, there was no obligation for a broker, mutual fund company, or any financial institution to track your cost basis pf mutual fund shares. It was your obligation.

One was supposed to keep the statements that proved their cost basis. Usually the annual year-end statement was sufficient because it had a list of all the transactions.

Here are some answers to FAQs: https://personal.vanguard.com/us/help/FAQCostBasisContent.jsp

 

[Texas Proud]

Before 2012, there was no obligation for a broker, mutual fund company, or any financial institution to track your cost basis pf mutual fund shares. It was your obligation.

One was supposed to keep the statements that proved their cost basis. Usually the annual year-end statement was sufficient because it had a list of all the transactions.

Here are some answers to FAQs: https://personal.vanguard.com/us/help/FAQCostBasisContent.jsp

+1 on that it is not the new broker that should have the basis....


You said you moved the accounts.... the new broker only gets what is given to them... if the old firm only moved money, that is all they got.... how can you blame them for the error of the old firm

 

[ownyourfuture]

"what should I do when I file my 1040 for the year"

Do you know how many years you held the fund ?

how much money was in it initially ?

are performance & any dividend or capital gains records available for those years ?

fund expense ratios, etc?

If they are, you could just do a rough cost basis estimate.

If none of this is available, you'll just have to take a wild guess

 

[jebmke]

Before 2012, there was no obligation for a broker, mutual fund company, or any financial institution to track your cost basis pf mutual fund shares. It was your obligation.
https://personal.vanguard.com/us/help/FAQCostBasisContent.jsp

Right.

Even with new rules I am maintaining my own records for covered shares.

 

[pb4uski]

Your frustration should be with yourself for not keeping the requisite records, not with the your broker or the fund companies.

If your income in 2015, with the proceeds from the sale of the fund assuming a zero cost basis will be in the 15% tax bracket then you could just sell, put in the basis as zero and still not owe any taxes since capital gains taxes are zero for those in the 15% tax bracket.

If not, then you might sell over a number of years to stay within the 15% bracket.

Otherwise, the only thing you can do is get whatever records for transactions are available and determine your basis for those lots, then for other lots either make a reasonable estimate with the understanding that there is tax risk associated with it or use zero as your basis and avoid any tax risk.

 

[JoeWras]

pb4uski has some interesting ideas.

I'll add that instead of 0 (which is safe, but unfortunate), you could also take the lowest price for the fund in the year in which you bought it. Can't remember the year? How about the decade? Take the lowest for the decade.

That's better than 0, and should still be bullet proof for an unlikely audit.

 

[athena53]

Do you have all your old tax returns from the years you had it? Remember any capital gain distributions reduced the basis because you already paid taxes on them.

Try Morningstar or the Fund company's site to get an idea what the value was around the time you bought it. Do something reasonable, document the heck out of it (in your own files, in case you're audited), then forget it.

 

[pb4uski]

Do you have all your old tax returns from the years you had it? Remember any capital gain distributions reduced the basis because you already paid taxes on them. ....

You mean CG distributions that are reinvested increased the basis, not reduce it, right? They increase the basis and reduce the gain.

Also, same for dividends that were reinvested. You can get the annual dividend from Schedule B of the tax return if applicable if dividends were reinvested.

 

[athena53]

You mean CG distributions that are reinvested increased the basis, not reduce it, right? They increase the basis and reduce the gain.

Also, same for dividends that were reinvested. You can get the annual dividend from Schedule B of the tax return if applicable if dividends were reinvested.

Right- thanks for the correction.

 

[doneat54]

29 years in corporate life, 3 companies, this rolled into that, I have been in this boat a few times (including this 2014 tax filing). I think that if I can show a reasonably well thought out calculation of CB should I get audited, there will be no problem. I do what others have suggested here, I dig through old records and find the earliest evidence of when I owned the holding, then usually either take an average for that year, or take the lowest value for the year. Important thing is to have a piece of paper in your records, with your return copy that explains the rational/calculation and file it away. If you get audited 1-3 years from now, don't trust yourself to remember how you did it. I have read that if you can pull out a piece of paper and explain your number, you will be fine..

 

[pb4uski]

Agreed, as long as the agent thinks that you made a good faith effort and that the result is reasonable in the circumstances chances are good that they will accept it.

 

[Bogie]

I just finished taxes and had a lot of trouble with some tax free school bonds I sold last year. They were bought a couple of years after their original issue at a premium above the original issue and sold before maturity at a LTCG. I could not have calculated the basis without a LOT of help from the brokerage. They helped even though I wasn't using them when the bonds were originally bought. I don't know where they found the original discount. I looked on EMMA and it wasn't listed.

 

[Brat]

I helped a friend this year with exactly that problem for an inherited stock. I used Google and got the answer. Pick a date, give the abbreviation for the mutual fund and Google it. If you get an answer print it out, done!

 

[Texas Proud]

I helped a friend this year with exactly that problem for an inherited stock. I used Google and got the answer. Pick a date, give the abbreviation for the mutual fund and Google it. If you get an answer print it out, done!

Inherited stock should have the basis on the value on date of death... should be easy to get...

 

[Brat]

Yes, my friend knew the date and the name of the stock but her Mother passed away years ago. My friend was in a twit and was prepared to treat the sale as a 100% gain. It turned out that it was a substantial loss which offset other LTC gains. She is kicking herself for not watching the stock but was delighted with the LTCG offset.

I suggest that the OP pick a date around where s/he purchased the fund and see what happens. Check the opening date of the fund add a year or two.

 

[ERD50]

Inherited stock should have the basis on the value on date of death... should be easy to get...

I've read that a zillion times, then I came across one article that said you take the open and the close on the date of death, and average them! And if the death occurred on a w/e, you use the previous close and the next open to average.

edit - correction; that's the average of the daily high-low, here's one link:

https://www.key.com/html/investment-taxes-articles.html

Take the average of the high and low prices for the date of death.

FURTHER edit....

http://wiki.fool.com/How_to_Calculate_the_Basis_for_Inherited_Stock

Compute the average stock price on the selected date by adding together the opening price plus the closing price and dividing by two. If the date of death was on a weekend, average the share prices, opening and closing for Friday and Monday. The result is your cost basis share price.

Obviously not going to make much difference in almost all cases, but I wonder if that is really the IRS requirement for determining 'value'? Of course,a mutual fund doesn't trade during the day, so it's the same thing.

-ERD50

 

[harley]

I've read that a zillion times, then I came across one article that said you take the open and the close on the date of death, and average them! And if the death occurred on a w/e, you use the previous close and the next open to average.

edit - correction; that's the average of the daily high-low, here's one link:

https://www.key.com/html/investment-taxes-articles.html

FURTHER edit....

http://wiki.fool.com/How_to_Calculate_the_Basis_for_Inherited_Stock

Obviously not going to make much difference in almost all cases, but I wonder if that is really the IRS requirement for determining 'value'? Of course,a mutual fund doesn't trade during the day, so it's the same thing.

-ERD50

This is one of the many cases where I would just do what makes the most sense (in this case use the closing value), then if the IRS came sniffing around I'd make whatever change they demanded and give them a roll or two of pennies for the penalty. Now if the estate was in the multi millions I might not do it that way, but if it was there's be an estate lawyer, a tax lawyer, and a CPA involved and you wouldn't be doing the cost basis yourself. But in most cases, KISS.

 

[gauss]

Did you buy the fund in question all at once or did you buy in over time (not talking about CG distributions here)? Seems like the answer to this question will have a lot to do with how complicated the task will be to reconstruct the basis.

p.s. Isn't this a service that a CPA can provide? Depending on how much is at stake here, perhaps some professional help may be appropriate.

Even if you claim a reasonable basis, and the IRS audits you, your downside risk would be limited. The difference in basis between what you claimed and 0. Add in late to pay penalty (~0.5 percent/month) + interest (~ 3%/year) and you are looking at around 9%/year combined. That is half what the average person spends on credit card interest! Assume 3 year window for audit assuming you haven't underreported your income by more than 25% ( seven year audit window) or are submitting a fraudulent return (unlimited audit window) and you should be able to make an informed decision.

You can get a rolling 10 years of back 1099-s and W2-s from the IRS instantly by requesting a transcript online. The returns only go back 3 years however. Not sure if this would help in your case.
edit: actually it would help. You would see the 1099-divs for the fund each year for dividend and cg distributions. You could back out your shares owned each year (at least for the past 10 years). I should do this professionally..

Perhaps as others have said assume you purchased one day each year at the lowest price of the year to keep your basis low. Then the only question is how to allocate the purchases (ie all in one year or an equal # of shares each year etc).

Oh, and by the way, in case you haven't heard IRS audits may be at historically low levels this year due to budget cuts. If you are not Uber high income (ie 1M/year) or a business, or have been caught with misreported income in a prior audit, your risk of audit may be very low.

-gauss

p.s. On a related note, some day I will start up a thread about the record-keeping requirements for Roth IRAs for ERs who want to take their conversions out tax free before age 59 1/2 as allowed by law. In my case this goes back 25 years of records! (see form 8606 line 24).

 

[ERD50]

This is one of the many cases where I would just do what makes the most sense (in this case use the closing value), then if the IRS came sniffing around I'd make whatever change they demanded and give them a roll or two of pennies for the penalty. Now if the estate was in the multi millions I might not do it that way, but if it was there's be an estate lawyer, a tax lawyer, and a CPA involved and you wouldn't be doing the cost basis yourself. But in most cases, KISS.

I agree completely. For my FIL's estate (not multi-millions), I had already entered the closing price of the stocks he had into a spreadsheet, and I don't plan to change that. As you say, pennies of difference, if even.

I posted mainly in frustration that something that should be a totally objective, fill in the box, type of information has different opinions on the 'right way' to do it. All I've ever seen from the IRS is 'value at the date of death', but they don't specify how to determine that value. Or at least I have not seen it, and I would think one of those writers would have referenced it.

-ERD50

 

[Texas Proud]

I agree completely. For my FIL's estate (not multi-millions), I had already entered the closing price of the stocks he had into a spreadsheet, and I don't plan to change that. As you say, pennies of difference, if even.

I posted mainly in frustration that something that should be a totally objective, fill in the box, type of information has different opinions on the 'right way' to do it. All I've ever seen from the IRS is 'value at the date of death', but they don't specify how to determine that value. Or at least I have not seen it, and I would think one of those writers would have referenced it.

-ERD50

Well, to be fair I did not say what to use to get that value.....


I did estate taxes just after I graduated from college... wish I could remember what I used.... but what comes to my mind is we used closing price... (this was so long ago, the rules might have changed since then)... you are correct that the difference is not that much... and could be in your favor if the market had a great day...

The biggest valuation issues with an estate is closely held business and real estate...... they will push on these as there is no real market to look at... one of the returns I did when audited (and back then every return I did was audited, not because of me doing it but because they would audit all returns) they really pushed us on the value of the RE... but they gave up on the value of some other things that went in the favor of my client... and since the RE was rental property they had higher basis to depreciate... win-win....

 

[utrecht]

If the mutual fund company doesnt have the cost basis and the broker doesn't have the cost basis, then the IRS has no way of having it either. Come up with your best guess, round up and move on.

 

[ERD50]

Well, to be fair I did not say what to use to get that value.....
...

You are correct. I think I read that in my head, as I've read it in so many articles to just 'take the value', but they don't say specifically how, and I just assumed closing price as well.

My comments (though I was quoting you) were really directed at all the articles and IRS pubs I've read, that take you right up to that point, and then drop it. But for a personal estate, the differences are so slight to not bother with little differences like this, esp on liquid stocks.

I see your point about real estate or other less traded assets - that can be a can of worms.

-ERD50

 

[GrayHare]

All I've ever seen from the IRS is 'value at the date of death', but they don't specify how to determine that value. Or at least I have not seen it, and I would think one of those writers would have referenced it.

If the date of death is a business day, the valuation is the average of the high and low attained on that date.