I've read many of the questions/answers and I'm still confused about the Form 8453 and 8949 supporting documents.

[jmorris9999]

I've read many of the questions/answers and I'm still confused about the Form 8453 and 8949 supporting documents.  I cashed out a mutual fund I've been paying into monthly since 1988. I received a 1099B with the cost basis detailed but for the funds purchased before 2011 (when the requirements changed) there was no cost basis reported.  I had to pull all my old statements and total all the costs.  Am I now required to mail a copy of each statement, along with the 8453 and 8949, to the IRS?

[GeoffreyG · Accepted solution]

Strictly speaking, the IRS instructions call for sending in (i.e., mailing) your Form 1099-B, or an acceptable substitute, to the IRS, listing each of your individual trades for the tax year, where the taxpayer chooses the option of making just a summary entry on Form 8949 (which then "flows" onto Schedule D).  This would include the sale of each separate "tax lot" of your particular mutual fund, for each separate month, going all the way back to 1988.  Given that was some thirty-years ago, the list of distinct transactions by tax lot could total well over three-hundred or more.

Realistically, however, and as a CPA myself, I've found it perfectly acceptable to file a tax return with just a single summary entry in the capital gains and losses section of your tax return, as long as the brokerage firm or other financial institution is clearly identified on Form 8949, and as long as the net proceeds, gains, losses, etc. totals exactly match the summary shown on the last page of the actual 1099-B (or a substitute statement) received by the taxpayer.

Really, that is all the IRS will be looking for . . . not all of your individual trades, especially where there could be hundreds of them.  Rather than adding up your individual trades then, what the IRS really needs is your net gain or loss summary, as that is what your tax calculation is ultimately based upon.

Certainly, I would strongly recommend to anyone that they keep their complete 1099-B as a "back-up" or proof, in the unlikely event that the IRS ever asks to see it, for as long as the statue of limitations exists for that particular tax return.  If the IRS does want to see all of your tax lot trades (unlikely), they will certainly contact you and let you know.

However, there is no real or actual need to mail all these documents (or another summary of your mutual fund activity and trades) to the IRS -- unless, of course, you are ever asked to do so, despite what the literal IRS instructions indicate.

If your capital gains / losses figures on your tax return agree to the last dollar with what your brokerage or mutual fund firm reported to the IRS, then that's all the IRS computers are really checking to see here.

Thank you for asking this important question.