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I have received form 1099-B from my broker, and the total gross proceeds on 1099-B seem way out of line with the total obtained from my own records. The tax on the amount obtained from my records would be substantially less than the tax on the amount on 1099-B. To complicate matters, I have run my records through GainsKeeper and the results obtained from Gainskeeper agree with my calculations. I am meticulous about keeping records and I am starting to suspect my broker's 1099-B data is bogus. The question is, if I file and pay the lesser amount of tax based on my records which do not comport with 1099-B, will the IRS have a problem with this? How would I go about proving the accuracy of my records over the broker's records. There are almost 1100 transactions so checking the transactions manually would be daunting.
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There are several reasons for the difference, but you don't give the information for us to tell you which applies. Why do your brokers list sales you say you didn't make? What kind of sales are they? Since Gainskeeper just repeats the infomation you gave it you shouldn't expect them to not agree with your figures. ed
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There are almost 1100 transactions so checking the transactions manually would be daunting.

Daunting or not, that is what will eventually need to be done.

The IRS computers will match up the 1099B with your return and see a discrepancy. Then they'll add the extra sale proceeds to your schedule D - as a short term gain - and send you a bill for the additional taxes, interest, and penalty due.

At that point, you'll need to tell the IRS why and where the 1099B is wrong. They will not do the work for you. You'll have to show them the error.

May as well get it out of the way now instead of waiting until next year. Perhaps you can sort your records into the same order as the 1099B. Or maybe you can download (or scan with some OCR software) and get the 1099B data into some kind of spreadsheet so you can sort it there.

--Peter
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I have received form 1099-B from my broker, and the total gross proceeds on 1099-B seem way out of line with the total obtained from my own records. The tax on the amount obtained from my records would be substantially less than the tax on the amount on 1099-B. To complicate matters, I have run my records through GainsKeeper and the results obtained from Gainskeeper agree with my calculations. I am meticulous about keeping records and I am starting to suspect my broker's 1099-B data is bogus. The question is, if I file and pay the lesser amount of tax based on my records which do not comport with 1099-B, will the IRS have a problem with this? How would I go about proving the accuracy of my records over the broker's records. There are almost 1100 transactions so checking the transactions manually would be daunting.

I suspect the two previous responders have missed the real issue here. You state that the tax on the amounts on 1099-B is way out of line with what you calculate the tax to be. However, the 1099-B does not report your trading gains, it reports your gross proceeds. You need to determine your gains, which it appears you have done. You need to report both the sales proceeds and the calculated gains. You'll only pay tax on the net gains. However, if the total sales proceeds (not gains) you report are less than those reported by the broker, you can be sure that you'll hear from the IRS.

Ira
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the 1099-B does not report your trading gains, it reports your gross proceeds.

This particular brokerage also lists purchases on its consolidated 1099, and the total of those purchases is also way out of line with my records.

I have prepared two different statements with GainsKeeper. One statement uses the OFX data downloaded from the brokerage. The second uses data from the brokerage's transaction history section which was downloaded and manually imported into Gainskeeper. The former gives the same result as the 1099; the latter gives the same result as my records. Comparing my 2004 ending balance to my 2005 ending balance and adjusting for deposits, withdrawals, interest, dividends, etc., the latter appears to be correct. In short, I get different results depending on which source of broker data I use.

The IRS computers will match up the 1099B with your return and see a discrepancy. Then they'll add the extra sale proceeds to your schedule D - as a short term gain - and send you a bill for the additional taxes, interest, and penalty due.

At that point, you'll need to tell the IRS why and where the 1099B is wrong.


How do I prove which set of records is correct and which is in error?
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How do I prove which set of records is correct and which is in error?

Presumably you get statements which list each statement period's trades. If the total of your statements doesn't match the 1099-B, you have proof that there's something on the 1099-B that shouldn't be there.

Phil
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I downloaded the year's trades from my brokerage's "transaction history" area and through some kind of hocus-pocus managed to get the figures to comport with 1099-B. I then cobbled together a custom D-1 and got it to reflect the correct (according to my records) capital gain amount, which is substantially lower than the previous figure. Problem solved, but the question remains as to why GainsKeeper came up with the "unreasonable" capital gain figure.

Thanks to all who replied.
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Problem solved, but the question remains as to why GainsKeeper came up with the "unreasonable" capital gain figure.

I know nothing about GainsKeeper, but my experience with debugged programs is that when they misbehave it's GIGO.

Phil
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How do I prove which set of records is correct and which is in error?

The best answer would be to have the brokerage issue a corrected 1099-B. You have the transaction history which is proof, but with 1100 trades it will be painful to work through with the IRS.

If the 1099B is wrong, it is likely that yours is not the only 1099B that is wrong. Software is rarely that selective. You can call and ask if they are going to be issuing corrected 1099Bs. If the problem is generic and occurs on simpler 1099Bs, they would have already received complaints.

It would be difficult to identify all of the differences, but it would be useful before calling your broker to identify one of the differences. The 1099B is normally sorted by date. Since the total for the transactions is incorrect, either there are additional transactions or the amount of the transaction is incorrect.

Debra
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I cannot see how the problem is solved until the brokerage sends to the IRS a 1099B that matches with your records. I'd identify just one transaction that is wrong on the 1099B and call the broker about it. Then during the call I'd mention how there must be a lot more transactions wrong because the total is off by a huge amount. I myself got a wrong 1099DIV (off by $0.80!) and called my broker about it; they are investigating it and promised to issue a new 1099DIV if needed.
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I know nothing about GainsKeeper, but my experience with debugged programs is that when they misbehave it's GIGO.

Recall that two reports were created with GainsKeeper: one with the downloaded OFX data and one with data I imported manually from the "transaction history" area. The latter matches my records to the penny and is the one I will file. The nice thing about GainsKeeper is that it keeps track of wash sales, and with 1100 transactions it turns out there are a few.

The one time I was audited just over a year ago, it seems they had issues with my wash sale accounting. That year I only had one wash sale which I did not account for on D-1, but it netted out by the end of the year so accounting for it wouldn't have changed anything. At the audit I had all of my impeccably-kept records at my fingertips, including the tax return and all of the brokerage statements for the year in question, plus I made a spreadsheet demonstrating that it made no difference whether or not I accounted for the wash sale. Turns out I knew more about the wash sale rule than the IRS examiner. He made copies of my brokerage statements and as the weeks and months went by I received letters informing me that they had examined my return and would not be changing anything. Hopefully they will think twice about auditing me next time, as there is no low-hanging fruit for them here :-)
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I suspect the two previous responders have missed the real issue here. You state that the tax on the amounts on 1099-B is way out of line with what you calculate the tax to be. However, the 1099-B does not report your trading gains, it reports your gross proceeds. You need to determine your gains, which it appears you have done. You need to report both the sales proceeds and the calculated gains. You'll only pay tax on the net gains. However, if the total sales proceeds (not gains) you report are less than those reported by the broker, you can be sure that you'll hear from the IRS.

OP, did you read this from Ira? I agree completely. Is this the issue? It sounds like it would be!

The 1099B just lists the total money you got back from the transactions, it does not list your cost basis.

i.e. if you sell a stock for $1100, and you bought it from $1000... the 1099 will list "gross proceeds" of $1100. It does not even pretend to list your "net proceeds", or gain, of $100. That's up to you!


Is this the issue? Or does the number on the 1099 not even match what you think your gross proceeds are?
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OP, did you read this from Ira? I agree completely. Is this the issue? It sounds like it would be!

The 1099B just lists the total money you got back from the transactions, it does not list your cost basis.


I read Ira's post and responded to him thus:

This particular brokerage also lists purchases on its consolidated 1099, and the total of those purchases is also way out of line with my records.
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This particular brokerage also lists purchases on its consolidated 1099, and the total of those purchases is also way out of line with my records.


Perhaps the brokerage total of purchases does not include the commissions and fees paid, and your records' total does.
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