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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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When preparing my fathers 2007 taxes, I made a mistake when

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When preparing my father's 2007 taxes, I made a mistake when completing his Capital Gains section. When we sold his mutual funds, they gave me a breakdown of the cost basis information with the exception of two transactions where the cost basis was unavailable.

It appears that any purchases on his account prior to 2000 were listed as a lump some with a cost as unavailable. I accidentally did not include those items with no cost basis on his taxes and am now being fined. I do not agree with there assessments as to what is missing, but can't figure out the cost basis to correct them.

Do I simply take the average of all purchases post 2000 and use it as a cost basis?
Hello Leenie,

When you sell stocks or bonds or mutual funds, a copy of the form 1099B which is sent to you by the investment firm is also sent to the IRS. If you then omit some or all of those transactions from your tax return, then the IRS will recalculate your taxes on those transactions and automatically allow a cost basis of zero, which makes the entire sale subject to tax.

Once you amend his return and include the proper cost basis on these funds, this should greatly reduce any tax they are saying your father owes.

However, if these stocks or mutual funds were purchased prior to 2000, you cannot simply use the costs you have from the same purchases he made in later years. In all likelihood those costs would have been higher than what they were before the year 2000, and so you would be understating any gains he had from the sales.

If you no longer have records of what the price was he paid for these stocks or funds, there are many websites which provide you with historical stock quote prices. All you need to do is enter the stock or fund symbol and the date range which you are looking for, and it will show you the closing price for that stock on each day in the date range you select. Here is a link to one of those sites.

http://finance.yahoo.com/q/hp?s=yhoo

Find the closing price for the stock you need according to the date your father purchased the stock. If you do not have a record of the purchase date, the financial firm should be able to provide you with this. However, if for some reason they do not have that information available, then there is nothing you can do but make your best estimate of when the stocks were originally purchased, and use that as your purchase date.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you Leenie.

Merlo and other Tax Specialists are ready to help you
Customer: replied 7 years ago.

From looking at the history, my father bought into the fund on a quarterly basis. When I look at the history in the website you gave me, the history only goes back to 1994. Is it reasonable to take the average quarterpoint prices from 1994 to 2000 for the number of shares he has and use that as the cost basis? Will the IRS be OK with that?

 

 

Hello again Leenie,

Using an average cost as you suggested will most likely be acceptable to the IRS.

When you file this amended return and report the cost basis of these funds, you will not actually have to provide any documentation at that time as to how or where you came up with that cost basis. The only reason you would need to document that cost is if for some reason the IRS questioned the validity of the figures you were using. As long as you use an average cost from those years, they will not likely question your figures.

If for some reason they did question your figures, you would simply have to explain to them how you arrived at determining the cost. There are many times when a taxpayer has either misplaced their original cost records, or they have stocks which have been in the family for years, and the cost records are simply not available. In such a case, the IRS only requires that you make a reasonable effort at determining the costs. The method you have proposed to use seem s reasonable, and would likely be acceptable by the IRS.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you Leenie.

Customer: replied 7 years ago.

Merlo,

 

Thanks so much for your help. I really appreciate it.

 

Leenie

Thank you Leenie.

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