Message Font: Serif | Sans-Serif
No. of Recommendations: 1
<The honest thing to do is use a reasonable conservative estimate for basis, and report that. And save whatever documentation is used to support the estimated bais. When you're signing a return you're attesting the numbers are, to the best of your knowledge, true, correct, and complete. You're not guaranteeing you can prove them all in the event of an audit.>

This is one of those things where the OP has to consider his working relationship with the client. Are they someone you have worked with for a long time? Do they often leave you a big mess with all of their other paperwork? If a person comes in having already made the sale and not having any documentation at all, you can easily spend a lot of your time for a very small reward. OTOH, if you bill them for all of your time spent on this, it could add up to a very large bill for the client.

I would start with some back of the envelope numbers. Is there a stock price history for the stocks and time periods involved? If you compare the 1999 lowest price with the 2005 sale price you have something to work with. If the client is in the 15% bracket, the maximum CG tax would be 5%. Otherwise it will be 15%. If the gain is rather small, it may be easier for everyone to use the zero basis. Personally, I would be very reluctant to put my signature on a tax document where the taxpayer is so willfully ignorant of all that transpired. Did the buys actually take place in 1999? Were they single purchases or multiple lot purchases over several years? The burden of proof is on the taxpayer.

I know the zero cost basis seems to cause a lot of disagreements here. I consider it to be a price of extremely poor record keeping. Usually, if you dig hard enough and long enough you can come up with some figures that are reasonably defensible. Most of this assumes that you can at least arrive at a starting point. I am not generally sympathetic to those who have no records at all, have already made a sale and ask the question for the first time when April 15 is staring them in the face.

Also, I would not assume that the brokerage firm can help you. They probably will charge for their time. There has been a lot of merger activity in that sector, so it is possible that records under an old brokerage firm name have been discarded. The bottom line is that the client needs to be able to provide some more definitive information. For example, if one of these stocks was a 1999 IPO, then you can establish a start date. If shares were inherited on a stepped up basis you would also be able to establish a start date. But if this client says 1999 and it was actually 1995, there could be problems.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.