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rizziello66
Returning Member

Unknown Basis

I have read posts about how to determine basis when there are no records that support the basis on stocks or mutual funds.  However, I do taxes for someone who has some stock that there is no basis reported by the brokerage company.  They have no idea of when they bought it.  Maybe 10 years ago, maybe 15, maybe 20.  My question is, how stringent would the  IRS be in this case, if we said it was purchased 10 years ago without any supporting documentation. 

6 Replies
Critter-3
Level 15

Unknown Basis

You only have to prove it if the return is audited ... so use the best guess you have and keep substantiation of how you make the calculation.  If you don't enter something the basis is assumed to be zero ... anything is better than zero. 

 

Any I hope as a paid tax pro you are using a professional tax program since using Turbotax to prepare returns for compensation is against the law. 

NCperson
Level 15

Unknown Basis

an ideas:

 

the most conservative approach is to use a cost basis of zero - no one can argue with that.....if the stock price 10 years ago was very small, might as well use zero as the tax difference could be minor

 

where was the stock held? does that firm have any records? most financial institutions hold these records for years and years. 

 

did you have the stock certificate? was there a date on it? 

 

do you have old tax returns were the dividends were reported? if so, you know it was owned for that long. 

Hal_Al
Level 15

Unknown Basis

You have to report the sale on your tax return. Lacking any cost basis, the IRS will consider the entire sale amount as taxable. So, you need to make your best effort to determine the original cost basis, even if (worst case) it's a guess. Historical prices of publicly traded stocks are  readily available on the internet and should, at least, satisfy the IRS that your basis wasn't zero; just "google" “Historical Stock Prices". I use http://bigcharts.marketwatch.com/historical/. The stockholder relations dept. at the company may be able to help.

 

 "Maybe 10 years ago, maybe 15, maybe 20".  Then, the lowest price during that period would be the most conservative approach. You would not have to use zero. 

 

Mike9241
Level 15

Unknown Basis

yahoo finance has historical prices.  

fanfare
Level 15

Unknown Basis

stock holder may have a loss.

It is foolish to use basis of zero if you paid more than you sold it for.

In any case, the chances of being audited are pretty slim these days.

NCperson
Level 15

Unknown Basis

@fanfare - whether one is under risk of audit or not, please be reminded of the statement above one's signature on the tax return: 

 

"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. "

 

if someone is not confident the return is true, correct and complete, then using zero avoids any conflict with the statement as the IRS cannot argue taxes were underpaid.    if there was that much profit, there is motivation to figure out the true, correct and complete cost basis. 

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