Will IRS side with you over brokerage 1099-Div regarding date of ownership of assets if you have documentation of transfer notice different than reflected on 1099-Div?

[hikai77]

I have a solo taxable brokerage account and recently created a new joint account with my parents with them as the first listed account holders.  I signed a Letter of Authorization on 12/02/2017 to transfer multiple mutual funds in kind from the solo brokerage account into the joint account.  At the same time, the forms creating the joint account were signed by my parents and I.  The forms were received by my broker on 12/07/2017.  It wasn't until 12/13/2017 did we receive official notice that the joint account had been established (in spite of the account showing up in our brokerage overview list).  During the time period from 12/02/2017 to 12/13/2017, some of the funds that were transferred made capital gains redistributions.  My brokerage is saying that the redistributions will be reflected on the solo account 1099-Div instead of the joint account 1099-Div.  If that happens, is it OK if I do not include those redistributions in my filing if I note that they occurred after my letter of authorization for transfer and my parents report the redistributions on their tax return (as they are the primary account holders on the joint account)?

[dmertz · Accepted solution]

If you do not include on your tax return the Form 1099-B from your solo account, you'll certainly get a tax-deficiency notice from the IRS.  You could instead report the income on your tax return and nominee a portion of the income to your parents, but I doubt that any of this income is legally theirs.

The one to whom dividend and capital-gains distributions are paid is the accountholder of record on the Date of Record.  The Ex-Dividend Date, the date that dividends and capital gains are paid from the mutual fund, is usually the following business day.  The Pay Date, the date that the dividends and capital gains are credited to the account, is typically the day after the Ex-Dividend day.

It's possible and entirely appropriate for your solo account to be the account that receives the distribution if the shares are still registered to your solo account on the Date of Record, even if the shares are no longer registered to your solo account on the Ex-Dividend Date, Pay Date or later.  Absent some error in the transfer performed by the brokerage, the date that you requested the transfer is not particularly relevant.   A brokerage's administrative procedures determine the amount of time it takes from the time that you request that funds be transferred to the time that they actually become deregistered from your solo account and become registered to the joint account.  Until that happens, the dividend and capital-gains distributions are entirely yours.  For many mutual funds, the Date of Record is either on a Wednesday or Thursday.  If the brokerage received your authorization on Thursday, December 7, 2017, that would likely be too late to allow any year-end distributions with an Ex-Dividend Date of December 8 or earlier to be credited to the joint account.  Such is the risk you take when making ownership changes near year-end (or near any distribution date).

[Critter]

If the income shows up under your SS# then the IRS will expect it on your return and no amount of "explanations" will change that fact.   If you have an issue with the brokerage then that is where the correction must be addressed.  I am sure that in their rules somewhere the date of account establishment is discussed so review the paperwork you received.