Cost basis - sale of mutual fund shares - unusual circumstances

[epigeal987]

Hi! Any cost-basis gurus out there? I'm pretty confident that my brokerage under-reported the cost basis on mutual shares I purchased prior to 1/1/2012 and sold last year - and I think I should be able to report a higher number - but would appreciate your feedback due to the unusual (to me) circumstances.

I sold about $20,000 worth of shares in a mutual fund (Janus 20) in January 2018 on a FIFO basis (all were shares bought with reinvested distributions dating from 2001-2013).  My brokerage reported my cost basis on the 2018 sale as follows: about $9000 on $10,000 in shares purchased after 1/1/2012 and $0 on $10,000 purchased before then.

Matters are complicated by the fact J20 had been merged into another fund (Janus Henderson 40) in mid-2017. I have verified that the cost basis reported in my brokerage statement for my TOTAL JH40 holdings (at the moment the 2017 merger took place) exactly equaled the cost basis for just those J20 shares PURCHASED AFTER 1/1/2012. In other words the cost basis for the shares purchased before 1/1/2012 got "dropped."

It seems obvious to me I ought to be OK reporting the ACTUAL cost basis (since I can DEMONSTRATE what it is using the J20 statements in my possession).

At the same time, it worries me that 1) my brokerage reported the cost basis on the "dropped" shares as "$0" rather than "missing" or "NA" or something else; 2) JH40's inception was in 2009; 3) Right now, I only have J20 statements going back to 2009 (I DO have the purchase dates and share quantities in JH40 terms in the brokerage's 1099 mailing).

Many thanks in advance for helpful comments!

BTW
My federal tax liability would drop to zero if I adjusted the cost basis just for the shares purchased in December 2011, which account for the lion's share of the "dropped" cost basis.

I also verified - based on 5-6 data points - that the merger involved the exchange of each J20 share for exactly 1.9995 JH40 shares (I haven't seen any "official" communication on this score).

[MichaelL1 · Accepted solution]

When the merger took place looks like when your brokerage did not keep track correctly.

Normally they will leave the cost basis blank versus a $0 and say cost basis not reported to IRS and let the customer fill it in.

Regardless if they did this or not, you need to put in the correct cost basis and get rid of the $0.

You would then submit the return just like normal, however keep detailed records to verify the cost basis should IRS ask you to verify it.  It will do no good to attach this to the return when filing it.

Great that you caught this.

[epigeal987]

Thanx a lot TTMichaelL1! You're singing my song!