What are the implications of accidentally calculating cost basis incorrectly?

[hellotax1111]

Hello, 

My cost basis on 1099-B is missing for a stock that spun off a division. The cost basis is missing on the 1099-B because it was not provided by the brokerage since it was purchased before 2011. 

If the cost basis is accidentally calculated incorrectly:

1. What are the implications of that from an IRS perspective?

2. Are you more likely to be audited? 

3. How would the IRS know if a cost basis is incorrectly calculated?

[fanfare]

Generally, the IRS will accept the cost basis you enter.

We're all on the honor system here.

Did you already file with an incorrect basis?

if you know the correct basis you can file Form 1040-X to correct that.

@hellotax1111 

[hbl3973]

hellotax1111,

fanfare is as always right.  However, if you want help in determining the proper cost basis for the two portions of that spinoff to ease your mind, let me know what company was involved and what approximate date the spinoff occurred.  I will detail the tools and information sources that I use to [try to] work it out so you can be a pro at it in the future.

[hellotax1111]

Thank you both!

[hellotax1111]

Thank you both!

@hbl3973 

The original stock purchased was AT&T. I am not 100% sure when it was purchased but I think it was sometime between 1992-1995 from Quick & Reilly, which was eventually bought by Bank of America so I don't think Bank of America would have the records correct?

Warner Media spin off sale occurred on April 13, 2022. 

Thank you

[hbl3973]

I remember Quick & Reilly.  AT&T is complicated because of the Ma Bell breakup and recombinations over the years.  If you are sure you purchased AT&T and not one of the Ma Bell pieces, I have records from 1994 onwards to mid 2005:

9/30/1994  price/shr $54.15

9/30/1996  Lucent spinoff, AT&T basis 72.01%

4/15/1999 3 for 2 split

7/9/2001   Wireless spinoff, AT&T basis 77.66%

11/18/2002 Comcast spinoff, AT&T basis 37.40%

11/18/2002 1 for 5 reverse split

11/18/2005 Merger with SBC, new name AT&T Inc.  0.77942 shrs new AT&T per old AT&T shr

Looking at 

https://investors.att.com/stock-information/historical-stock-information/historical-stock-splits/att... 

there were no more stock splits after 2005 and no spinoffs or mergers prior to the 4/5/2022 action.

Historical stock prices are also tricky because of the old AT&T Co vs the new AT&T Inc but

https://investors.att.com/stock-information/historical-stock-information/historical-quote/att-corp

is the right place to look.

Vanguard used a 72% AT&T  and 28% WBD for the split of the AT&T cost basis as a result of the spinoff.

[hellotax1111]

Thank you! I'll take a look and see if I have questions since it's a lot to absorb.