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Incomplete 1099-B?
October 18, 2013
On October 3, 2008, President Bush signed The Emergency Economic Stabilization Act (the “Stabilization Act”) into law. Although the Stabilization Act is most famously known for the $700 Billion dollar bailout, it also tightened already existing laws on brokerages houses to report cost basis to investors and the IRS. Prior to the Stabilization Act, the IRS allowed brokerage houses to report the proceeds from stock sales, but not basis. As a result, the IRS was dependent upon the individual taxpayer to accurately report his or her respective capital gains or losses as they had only part of the picture. For some taxpayers, this was easy. A taxpayer would receive his or her year-end 1099-B from the brokerage house and see that the cost, basis and gains or losses were calculated for them. For these taxpayers, they bought stock, the stock went up or down, and then they sold it. These transactions were simple for the brokerage house to track, and therefore easy to report. But what if a stock split or a company merged? What if the taxpayer decided to move all of his or her stock portfolio from one brokerage house to another? Well, this made things more difficult for the brokerage houses to calculate a stock’s adjusted basis, so they did what most respectable companies would do … they completely disclaimed the ability to track the basis. Investors pay good money to go through these brokerage houses, and deserve more than a year-end statement with incomplete information. Fortunately, the federal government felt the same way. In 2008, at a time when large financial firm’s leverage was at its lowest, the Stabilization Act enacted a law that I can only view as inappropriately cruel by requiring them to do what they should have been doing all along … their job. Knowing the 2008 legislation would pass, the brokerage houses said, “Hey, this job you speak of is hard, we are not so sure we are up to the task!” (see The Challenge of Cost Basis Account, beginning on P. 3). Uncle Sam is not completely inhumane, so he only required them to report the basis on stocks purchased after January 1, 2011. As a result, taxpayers will continue to see incomplete 1099-B’s for stocks purchased before January 1, 2011 that have a muddled history (splits, mergers, etc.). Tracking basis is not rocket science. It simply takes time, attention to detail and knowing where to look. Our firm has been able to reconstruct the cost basis of mutual funds that go back to the 1980’s. We have been able to track down complete and accurate data for clients who know they sold stock but had no idea when and where the transactions took place. If you have received a letter from the IRS regarding the sale of stock without a cost basis and are at a loss, give us a call, we can help. Until next time, Alex