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I'm curious: did anybody else out there got a Form 1099 from Wells Fargo, more specifically the Wells Fargo Advisors unit, for the tax year 2011 that mis-reported a wash sale?

My father-in-law, 91 years old, asked me to do his taxes for last year (I use Turbo Tax, he'd gotten tired of paying a CPA for essentially data entry, I was free :-)). In December of 2010 he'd sold some stock at a loss; then, inadvertently re-purchased it in January of 2011 too early, thus incurring a wash sale, complicated slightly by the fact that it spanned calendar/tax years.

We noticed as we collected the information that Wells Fargo Advisors had correctly accounted for the wash sale carry forward when he ultimately sold the Jan purchased stock in December of 2011. That is, they correctly accounted for it in the December activity statement, adjusting the basis and holding period to reflect the older stock that had been sold in December of 2010. But--here's the mystery--their Form 1099, issued in January, dealt with it solely as a short term cap gains transaction.

After we inquired, a representative of an organization called First Clearing, LLC--which, it turns out, prepares these statements for Wells Fargo--wrote a fuzzy (evasive) letter cleverly worded to agree that "the closed lots do not appear to have taken into consideration the wash sale loss carry over" and going on to justify it on the basis that they weren't required to start adjusting basis on wash sales until January 1 of 2011.

But they didn't offer to issue a corrected Form 1099, which seems strange to me.

[Note: we've written back asking for a less equivocal acknowledgement that the 1099 is wrong, in the event of an audit triggered by our having filed the Schedule D with correct info and their having submitted to the IRS an incorrect report.]

So: any experience from others? I'd always assumed that Forms 1099 are prepared by people (OK, computers, but computers that have been programmed by people) who know what they're doing and are committed to accuracy. Is First Clearing, LLC, behind other financial services firms as well, issuing other incorrect 1099s?
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I'd always assumed that Forms 1099 are prepared by people (OK, computers, but computers that have been programmed by people) who know what they're doing and are committed to accuracy.

Well, you know what they say about assumptions. This is neither the first nor the last 1099 with a problem.

If you properly prepared the return you reduced your chance of an IRS inquiry. If there is an inquiry, once again I will be vindicated for my strong advice from the git-go that people should not rely on 1099's, but on their own meticulous records.

Phil
Rule Your Retirement Home Fool
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Oh, Phil -- We did rely on our records, in this case the records of my father-in-law, once I'd researched the whole thing. It was clear to me that the 1099 was wrong.

Just that I'd never encountered (or missed it if I did) an erroneous 1099 before. And in this case it was so obviously wrong because of the stark disagreement with their own December activity statement. But I'd not experienced wash-sales before, so had to do some digging to make sure that we were right.

We also included a letter to the IRS explaining the disparity, hoping that it too will reduce the chance of an inquiry.

Frankly one of the major frustrations was that his Wells Fargo "financial advisor" absolutely refused--or was truly incapable himself of understanding it--to make a definitive statement as to which was correct. He hid behind the "we can't give tax advice" line, when I clearly wasn't asking advice, but rather confirmation of veracity of information--an entirely different category of question. "Is this accurate, or is that?" That's not seeking advice.
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I am of the opinion that the 1099 was correct as issued. That doesn't mean it accurately accounts for all of the tax issued regarding that particular stock. It just means that Wells Fargo and First Clearing reported exactly what the IRS required them to report.

There's no reason to get upset or huffy with Wells on this one. And there's no reason to worry about the IRS asking questions. If they ask, you provide them the info from your records to back up the tax return.

Finally, there's a right way and a wrong way to report this particular sale. The right way would be to show it on the new Form 8949. This transaction should have been on an 8949 with box A checked. Columns c, d, e, and f should agree with the 1099. Then use columns b and g to adjust for the wash sale.

With that reporting, the IRS computers will match the 1099 and you shouldn't hear a thing from the matching program.

--Peter
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Frankly one of the major frustrations was that his Wells Fargo "financial advisor" absolutely refused--or was truly incapable himself of understanding it--to make a definitive statement as to which was correct. He hid behind the "we can't give tax advice" line, when I clearly wasn't asking advice, but rather confirmation of veracity of information--an entirely different category of question. "Is this accurate, or is that?" That's not seeking advice.

Once again, I've got to agree with the Wells Fargo advisor. (Hang on a second while I finish gagging over that statement. I'm not fond of Wells Fargo Advisors in general.) You were indeed seeking tax advice. You were asking how the transaction should be reported on a tax form - a 1099 in this case. And he quite rightly brought up the tax advise line.

Perhaps your father's tax accountant was doing more than just keypunching??

--Peter
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Peter --- I appreciate your responses. So help me understand a bit more. How can both the December statement and the 1099 be correctly reporting, yet differing entirely on the holding period and the basis used, for the stock in question.

The December activity statement had adjusted for the holding period to reflect the dates of the original holdings of the stock in question (NLY, if it matters) and also had adjusted the basis, carrying forward the disallowed (wash) sale. For what it's worth, so had all of the intervening monthly activity reports shown those adjustments for the stock sitting there in his account.

Then the 1099 comes along and treats it as a short term sale, not at all adjusting basis or holding period.

They can't both be correct, can they? And if so, how?

Either way, I fail to understand how asking for a definitive confirmation of accuracy is the same as asking for advice? It's just asking for an explanation of fact. "There is a correct way to report these transactions: does this comply?"

What am I missing?
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I fail to understand how asking for a definitive confirmation of accuracy is the same as asking for advice? It's just asking for an explanation of fact. "There is a correct way to report these transactions: does this comply?"

What am I missing?


The "explanation of fact" has to do with a tax document, and in Kansas we call that tax law. "Confirmation," definitive or not, sure sounds like advice to me. Ergo, as we say in Kansas, you were asking for tax advice. Be glad at least that rep doesn't ignore the fine print, because these outfits are notorious for their wrong tax advice.

As for your 1099-B, I suspect it's correct under the rules for its preparation, which were effective for purchases after 2010. I'm not about to dig into it since I couldn't care less (nor should you*), but since the wash sale that created the adjustment in the holding period took place before they were required to track such things, it's likely that this is one of those "oops" things that happen. Which is why I've been saying sine the law was passed that people should not rely on the 1099-B.

*Instead of fretting about the accuracy of the 1099-B you should be patting yourself on the back for not relying on it and for being able to figure out the ^%$^ing new reporting form.

Phil
Rule Your Retirement Home Fool
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They can't both be correct, can they? And if so, how?

Yes, they can. Because the correct treatment is different for 1099 reporting and for reporting on your 1040.

For stocks both purchased and sold in 2011, the broker has to report the basis from their records. Until 1/1/2011, brokers were not required to track your basis in the stock. Any tracking they did was a courtesy to their customers.

The purchase of this stock was in 2011. The broker was not required to know the basis of stock acquired before 2011. Therefore, they were not required to make any wash sale adjustments for sales happening before 2011. The wash sale happened in 2010, before brokers were required to track basis.

It all hinges on requirements. The fact that they actually DID know your basis is irrelevant. They were not required to know, therefore they are not required to make any wash sale adjustments based on information they were not required to know.

You, on the other hand, ARE required to track your basis. And you're still required to track your basis, even with the broker's tracking. So it's up to you to report the wash sale adjustment and not your broker.

"There is a correct way to report these transactions: does this comply?"

The question "Is this correct?" is not a fact. It is an opinion. Facts are who, what, when, where, why, how. If you had asked the broker to confirm the purchase and sale dates and the related amounts for the stock in question, he would have happily complied. Those are facts.

As a CPA, I am qualified to give my opinion on the correctness of financial reporting. Keeping track of the difference between fact and opinion is critical to me.

Let me demonstrate.

If I said, "1 + 1 = 2," you would likely say that is correct. But you are assuming that I'm doing math using base 10. If you say that statement is correct you are expressing an opinion. If I were to tell you I am using binary numbers, the statement becomes incorrect. First off, there would be no "2" in binary numbers, so the statement wouldn't make sense at all. Secondly, using binary numbers, the correct answer is "10".

Do you now see how the question "Is this correct?" is asking for an opinion and not stating a fact?

--Peter

PS - By now you should realize that I am stating my opinion that the broker's reporting on the 1099 is correct. Hence, my initial comment in the thread starts off saying "I am of the opinion ..."
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Well, Peter, thanks (I mean it) for such a complete explanation.

You haven't totally convinced me. And I do want to emphasize that we did keep track and did report the wash sale transaction ourselves accurately.

Although I get the point that the firms weren't required to track basis before 2011, and although reporting on the basis of that requirement may make it legally defensible or proper, I would never say it was "correct," certainly not from an accounting point of view. But this may be partly a semantic thing...and/or another example of a law having unintended side effects. It does seem odd--and surely not the intent-- that the law would be "requiring" firms to produce 1099s that, indulge me here, are "inaccurate" in the sense that they will disagree with the way you, as a CPA, would report on that same transaction. What after all is the purpose of a 1099?

But I do appreciate hearing from somebody who has an opinion I respect; I've read a lot of your messages over the years and know you have solid experience. In this case, you have helped me understand more where Wells Fargo is coming from. And I've certainly gotten the point that I should make sure my own records continue to be meticulous; and, to the extent that I can, I'll help my father-in-law do the same. :-)
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It does seem odd--and surely not the intent-- that the law would be "requiring" firms to produce 1099s that, indulge me here, are "inaccurate" in the sense that they will disagree with the way you, as a CPA, would report on that same transaction. What after all is the purpose of a 1099?

I do agree with you - what is required to be reported on a 1099 is not the same as what is required to be on your 1040. And as you point out, that is not the fault of any brokerage - it's the fault of the legislation.

To me it looks like more of a transition issue. Any item that requires basis reporting where the basis is affected by a transaction BEFORE basis reporting was required will be incomplete on the 1099. As time passes (and assuming the law doesn't change), there will be fewer and fewer of transactions with the issue you ran into.

--Peter
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