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Author: mack165 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: no way to make a basis on gifted stock Date: 7/16/2001 10:34 AM
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I'm new to this site and i know this has been asked before, but I couldn't find advice that would help me.
MY PROBLEM: Mother in law gave us shares of AON CORP(AOC) about 6 years ago. She never kept records of when/what cost/etc that she got her stock(most of it over a 20 year period came from dividend reinvestments/ stock splits). There is NO WAY I can determine what her basis was when she gave us the stock.
1. What do I do to determine a basis so i can sell them ?

2.Besides posting answers here, could you also e-mail them to me directly?? Thanks so much, John Mcmenamin (e-mail: mack165@juno.com)
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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52575 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 1:01 PM
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<MY PROBLEM: Mother in law gave us shares of AON CORP(AOC) about 6 years ago. She never kept records of when/what cost/etc that she got her stock(most of it over a 20 year period came from dividend reinvestments/ stock splits). There is NO WAY I can determine what her basis was when she gave us the stock.

What do I do to determine a basis so i can sell them?>


Determining the cost basis is YOUR responsibility. The broker or the company have no obligation to provide any of this data. Often shareholder relations might be able to help you, but I would doubt it in your case as you are talking about records over 25 years old. Also M&A activity often results in the old company's records getting lost in the shuffle.

Others may tell you to make a guess at what the basis probably would be. If you go that route remember that if audited, you will be required to produce "proof".

If you look at the bigger picture, you were given something of value for no investment on your part. Since we are looking at LTCG, you will be taxed at a 20% rate. If you use ZERO as your basis, your tax will be 20% of the net proceeds. You will still have 80% of what is left (less any state tax obligations). This figure is considerably more than you started with. Keeping good records is an essential element of stock ownership. Unfortunately, not everyone follows that practice.


BRG



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Author: couzensj Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52581 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 2:59 PM
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I'm new to this site and i know this has been asked before, but I couldn't find advice that would help me.
MY PROBLEM: Mother in law gave us shares of AON CORP(AOC) about 6 years ago. She never kept records of when/what cost/etc that she got her stock(most of it over a 20 year period came from dividend reinvestments/ stock splits). There is NO WAY I can determine what her basis was when she gave us the stock.
1. What do I do to determine a basis so i can sell them ?

Determining you mother's cost basis will be a major problem but it can be done. First, you need to know how your mother got the stock (gift or purchased). If she received its as a result of distribution of an estate that was her cost basis is probably the date of the deaceased. If she inherited then the estate administrator would have valued it based upon the date of death.

If you mother bought it then you need to determine when it was purchaed. Once you can determine when it was purchased you can get old stock prices from the Library by date. Once you determine your mothers purchase price that will be the orginal cost basis - now all you have to do is adjust the for reinvested dividends and stock splits. Sites like yahoo will list stock splits.

Good luck

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Author: pbpapa One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52589 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 4:50 PM
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Never say never... Never say NO way, and never listen to someone who advises you to pass up a legitimate claim because you lack "proof". You CAN and you SHOULD come up with a reasonable estimate, as noted in Couzens last paragraph. You can get an accurate history of stock prices and splits from the company and/or the library or from a web search. Then you can assume a some rate of purchase over the years (constant dollars or constant share quantities or?). You can be aggressive or conservative as you choose. But if you don't choose, you lose. So go for it; the worst you have is the rather remote chance of a negotiation at some future date. If you do your homework, you have a good position from which to negotiate.

As to the premise that the broker is not responsible, tell me please for what are we paying a commission? Virtually no one holds stock cirtificates anymore. If you purchase stocks from the broker who later sells them for you, it is absolutely reasonable to hold him responsible for providing that information (as many brokerages do) along with the 1099B. If you transfer shares (or your great grandmother's cirtificates) into a brokerage account, it is also absolutely reasonable to ask the broker to establish a basis at the time of transfer and to then provide that info along with the 1099B. The IRS could and should require that information on the 1099B.

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52591 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 6:35 PM
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<never listen to someone who advises you to pass up a legitimate claim because you lack "proof"..You can get an accurate history of stock prices and splits from the company and/or the library or from a web search. Then you can assume some rate of purchase over the years.>

<<As to the premise that the broker is not responsible, tell me please for what are we paying a commission?...If you transfer shares (or your great grandmother's cirtificates) into a brokerage account, it is also absolutely reasonable to ask the broker to establish a basis at the time of transfer and to then provide that info along with the 1099B.>>


First, the original poster said there were no records of any kind and that the history started at least 25 years ago (20+6). You have no dates of purchase, no record of dollar amounts or no indication of prior sales. Even if you had certificates, the date on them is only the date of issue, not the date of purchase. If you had new certificates made 6 years ago with the new owner designation, they are even more useless. Unless you have something more conrete to hang your hat on, I do not see how you can avoid taking the zero basis. If it was stated that 500 of 600 shares were bought or inherited on 1/2/75 you would have a fair starting point to claim a cost basis on at least those 500 shares (plus any adjustments since then). What you are suggesting is simply a WAG.

The problem when people do not keep decent records is that it becomes increasingly difficult to piece things together as time goes by. IE: if you were trying to backtrack holdings in Verizon look at what you would face. Verizon is a result of the merger between GTE and Bell Atlantic. Bell Atlantic also had a prior merger with NYNEX. Of course Bell Atlantic and Nynex were both spun off of AT&T. See how ugly this can get? The further back in time that you go, the less help you should expect from investor relations in ANY company.

As for the broker, you are paying a commission to perform a transaction, nothing more. Nowhere on any transaction are they required to list your cost basis. The 1099 that you receive will show either gross proceeds or gross proceeds less commission. That is the number that will be reported to the IRS. Figuring the cost basis is YOUR responsibility. If you are placing grandmas shares into a brokerage account, the broker is not responsible for calculating her original basis. You can ask them to help you, but again if you do not have specific dates and dollar amounts they are not responsible.

You may be able to get away with using an invented basis number, but it will not stand up to an audit. I do not think that any of the pros who regularly post here would suggest that as a good course of action to follow. If there are other legal choices in between, I am more than willing to hear them.

You should also bear in mind the law of diminishing returns. If the sale provides 10k of proceeds, you will owe 2.0k federal taxes using a zero basis. If you take 50 hours of time in your research to come up with an estimate of 2.0k as a cost basis, your tax liability only shrinks by $400 from 2.0k to 1.6k. Do you want to face a possible audit and/or penalties over this amount? Is $400 worth that much of your time? If there are more details that either one of us are not aware of but can be provided, maybe the answer can be modified.


BRG


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Author: acm4tax Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52598 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 11:03 PM
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In defense of pbpapa, I have been involved with a couple of audits where no proof of stock origin was to found. The auditor reviewed the efforts I had made at establishing a "reasonable basis" and no change was made.

Do not underestimate the records the stockholder services department of the company's stock you hold can provide you. Contact stockholder services first to find out what type of stock purchase or stock bonus plans the company had in the past. By giving the name and social security number of the original holder of the stock, they may be able to come up with annual distributions of the stock for you. Or maybe it was paid for over time and distributed once every 5 years or something. You won't know until you ask. With basic info such as this, a tax pro will be able to help you establish a reasonable basis to use on a tax return. And if you inquire at a time of the year other than tax season, you might even get a person who will be civil with you!

Unless there is some huge estate tax potential, it is best to earmark stock gifts in a will rather than a predeath transfer. We still get stepped up basis on stock at death. And who knows what a future Congress with do once we get closer to the end of the life of the current estate tax changes. None of these estate tax law changes are engraved in granite.

I agree also with pbpapa that brokers should make some kind of effort to establish basis of stock deposited into an account. As a tax preparer who has everything all at once dumped on her desk within 2 1/2 short months, it's a tremendous burden to add that task to our workload.

I just spent 6 1/2 hours establishing basis for my brokers personal tax account so he can do his 2000 tax return! But he did provide me with all the printouts from the brokerage firm. So although it was time intensive because of the volume of transactions, it was not hard work.

And you wonder why a taxpreparer at tax time will elect to file an extension for your taxes????



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Author: pbpapa One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52599 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/16/2001 11:12 PM
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Whoa, Big Fella! What the original poster said was that his mother in law had no records. But There are records of the price history and the splits. So there IS a basis for a calculation. And the absolute LOWEST number you could come up with is the lowest price recorded over the period times the total number of shares sold (ignoring splits and reinvested dividends). That nunber, I will bet my hat, ass and overcoat, is greater than zero.

The IRS routinely accepts estimates to substantiate deduction/expense claims (eg business milage calculations,) as long as the result is reasonable. The fact that they sometimes (even if often) dispute such evidence is no reason not to try. So, I reiterate: “… never listen to someone who advises you to pass up a legitimate claim because you lack 'proof'".

As for the broker, if the IRS required, as it should, that brokerage firms require a basis for shares placed in their accounts, then that would settle that; and the brokerages, not to merntion the IRS and the tax practioners would be way ahead in man hours expended.


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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52603 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/17/2001 1:22 PM
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<There are records of the price history and the splits. So there IS a basis for a calculation...That nunber, I will bet my hat, ass and overcoat, is greater than zero.>


Having records of the price history and splits is irrelevant if you do not have any records of WHEN the stock was bought. I do not disagree with you that the number would have to be greater than zero. You seem to keep missing my point which is that you have to START with a real number somewhere. Were the shares bought in 1970, 1975 or 1980?

You are correct that the IRS will generally allow reasonable estimates of expenses. Those reasonable estimates usually flow from a firm point. IE: I made X business trips to California last year. I flew, rented a car, stayed in a hotel and ate meals. Those are reasonable expenses which would be allowed as long as I could establish that I had a business need to go there. How much time and money is it worth to one to invest in calculating your cost basis? Will your costs end up being more than your savings?

I also said that you could try investor relations, but to not expect much in the way of results on records over 25 years old. This is especially true if there have been a number of mergers along the way. If you decided to leave the leg work up to your accountant, you would very quickly run into my other point which is paying more for the work than you would receive in the tax break. If you paid your accountant for 4 hours @150/hr you would be spending 600 to save 400 in the example, plus any of your own time spent on this.


<<As for the broker, if the IRS required, as it should, that brokerage firms require a basis for shares placed in their accounts, then that would settle that; and the brokerages, not to merntion the IRS and the tax practioners would be way ahead in man hours expended.>>

On this point, I would agree that it would be easier if one had all of the basis information placed in the account. The reality is that there is no requirement at all for them to do so. They are not responsible for maintaining records of your prior transactions. Responsibility always rests with the shareholder. Again they may offer to help, but if you just say these shares were bought some time in the 1970's and 80's they will likely start laughing at you.

Generally, I think we probably agree about many points. On the others I would say that we may agree to disagree. The poster or anyone else in a similar situation should decide for themselves what is the best course of action. The bottom line is that if people keep even reasonable records, the whole issue is avoided.


BRG



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Author: pbpapa One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52621 of 121114
Subject: Re: no way to make a basis on gifted stock Date: 7/18/2001 12:12 AM
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Perhaps we can agree upon this: Folks who post here looking for a little help are not looking for a lecture about all the things they CANNOT DO. A suggestion as to what they CAN do (together with a risk assessment where called for) would be more satisfying and more useful. And I reiterate my wager of my cap, cape and derierre, that any reasonable estimate of a (non-zero) basis stands a far better chance of flying than the Wright brothers ever had any 'wright' to expect.

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