How many of you have ever had the frustrating job of trying to recreate basis on a stock or mutual fund for a client? Lots of fun isn’t it? The best place to start of course is in the clients records, because all of our clients keep well maintained documents and records and always bring us everything we need, right? What, no? OK, then where are some other avenues?
How about things like this:
1. Call the broker – Sometimes they have records that are not on the reporting documents or statements.
2. Trace back what records they do have – Have the client bring those stocks of unopened monthly statements or other communications from the brokers that they have stuffed in a drawer.
3. Call the employer if it’s Employee Stock Purchase Plan (ESOP) or stock options – Most of the employers will either have records or can point you in the direction of the company that manages their plan.
4. Review prior year returns schedule D – Did they have some of the same stocks/funds on prior year returns? Where did they come up with that basis? Did they come up with a basis or just take $0 (possible amendment opportunity here).
These are all good options and great places to look at. How about the client who comes in who worked for AT&T for 30 years and has stock from the ESOP? AT&T has an investor relations site that can at least point you in the right direction. Another favorite place for me to look is Morningstar.com. They have a great historical pricing database that can be narrowed down to daily pricing or averaged.
So, your client comes in and he inherited the stock from his Dad and dad retired from the company in 1965. Well, we know Dad had a basis in the stock. And we know junior got the stepped up basis based on the FMV at date of death. All we need to know is when dad died and we plug in the historical data and voila, we have a basis.
Or, your client is an elderly retiree from the KCS railroad and has stock in that company. He was in an ESOP the entire time he worked there from 1970-1995. The funds came out of his paycheck and he has no idea how much he put into the investments. You jump on a search site, another one of my favorites is Yahoo Finance, and get an average price for the time he was there. Always go with the lower end of the average. Yes your client pays more, but, since he has no hard back up data we have to sacrifice some. Now you at least have a working basis for your schedule D. You can also check the brokerage house websites for the funds and the company website for individual stocks. Lots of times the company sites have investor relations pages or phone numbers that will get you someone to help you.
I’ll tell you a big secret the IRS doesn’t want folks to know: unless the stock was purchased since 1 Jan 2011, when brokers were required to report the basis and acquisition date(s) to the IRS upon sale, the IRS has just as hard a time coming up with a good basis as you did. So, while you’ll see the IRS take the position that you must be able to substantiate any declaration of basis, I have found that as long as you exercise due diligence relative to the resources available, they will be very accommodating as to your calculations.
Last but certainly not least we have the mass multimedia search engines which we talked about in our last segment. They provide a wealth of information, but, let’s make sure we follow rule number one, authenticate!
Next up – Using What You Have Learned
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