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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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I have some UGMA accounts for my children and I want to sell

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I have some UGMA accounts for my children and I want to sell the stock to move the money in to a 529 plan account. Between 1997 and 2001 the dividends in these accounts were re-invested to purchase partial (or fractional) shares. I don't have all the paperwork to determine when and at what price these shares were purchased. The end result is that there is 5 extra shares of one stock and 17 extra shares of another stock. Is there an easy way to sell these stocks without having to figure out each and every lot for the partial share purchases??? help!

Hello JA Customer,

 

Are these mutual funds that you hold or individual stocks?

 

 

Customer: replied 6 years ago.
Individual stocks. Aflac and ADP

Hello again JA Customer,

 

Unlike investments in mutual funds, the average cost of shares of stock may not be used when determining the gain or loss upon sale. The actual cost of each block of stock sold must be used to determine the gain or loss associated with the sale of each block.

 

In a case where a taxpayer no longer has complete records on the cost basis of the stocks, the IRS requires that you make a reasonable effort at determining your basis in the stocks. I assume that you do know the basis for the actual shares purchased and that you simply do not have the cost information on the additional shares that you received as dividends. If that is the case, what I would suggest doing is using one of the websites which provide historical stock price data, and find what would have been the average price of each of those stocks during the period 1997 to 2001 and then use that as your basis on all of those extra shares. And then just report all of those extra shares as one block purchased on the date of perhaps 12/15/1999 or some other median date that you choose.

 

The only way this would ever become an issue is you happened to be selected for audit. But even if that were to happen, as long as you can show you used some reasonable method to determine the basis of those shares, the IRS is not likely to give you any problems, particularly since this is a relatively small amount of shares involved here.

 

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Thank you JA Customer

 

 



Edited by Merlo on 8/2/2010 at 11:14 PM EST
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