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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Cost Basis Date: 7/4/1997 1:25 PM
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<<I recently changed brokers thinking that they would transfe all stocks to the new broker. However, and this is the kicker, they do not accept fractional shares so the old broker sold them. And I was already having trouble with figuring taxes when I go to sell the shares. My dividends were reinvested(I recently left a post re; cost basis of selling shares with dividends reinvested). So Schwab sold some fractional shares that were left with them .So can these fractional shares be considered as some of the di
vidends for the purpose of cost basis? And then when I sell all the original shares figure the cost from that as instructed above(#56 I believe) The amts will be only $200-$300. What a mess. I guess this is a cautionary tale for others. >>

Yup. You're right. A mess is exactly what you have.

All I can do is to lead you back to my original post as advice regarding the allocation of basis to these shares.

You will NOT be able to do a basis adjustment unless you sell of the remainder of the shares this year (1997). Why not?? Because Schwab will be sending you a Form 1099B at year end which will reflect the sale of those fractional shares. If you still hold the "whole" shares, you'll have to go through and compute the basis on the fractional shares in order to complete your 1997 Schedule D.

Obviously, if you decide to sell the remainder of your positions in 1997, you're basis allocation will be much easier and defensible. The "spreading" of the basis will be much less important since the entire position will have been sold off.

So you'll have to make a decision as to what to do. Personally, I wouldn't sell off a stock that I thought had potential just because of these issues. But that is a call that only YOU can make.

And if you decide to simply take a WAG (wild arse guess) as to the basis of these shares, based upon your records, that is another decision that you must make. I can only tell you what the law requires. But for $200-300, you shouldn't lose tooooo much sleep over this entire transaction. You make the call.

And as JeanDavid points out, one of the beauties of trading in an IRA is that the recordkeeping is a snap. Stock splits, spin offs, split ups, fractional shares. WHO CARES. The money is subject to tax when it is REMOVED from the IRA.

And while removing funds from an IRA that has "basis" (i.e., non-deductible contributions were made to the IRA during some time in the past) may cause some computational issues when the IRA money is withdrawn (you have to "blend" taxable and non-taxable amounts withdrawn), the recordkeeping issues are MUCH reduced.

Hope this helps...
TMF Taxes
Roy Lewis
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