Do I need to file a Form 1099B that is in my wife and father in law's names when her parents are the ones who sold the stocks?

[ksosbe]

My wife's parents started a fund for her when she was younger with money given to them by her grandparents. My wife's parents added funds over time, and they are not sure exactly when they did this either. The account is in both her name and her father's name. Her parents cashed out part of the account to buy her a car and give us the remainder. The bank did not track the cost basis, as the account was transferred to them at some point in time from another bank and they told us the account was created before they were required to keep track of this information. We also do not know when the account was created exactly, but they are fairly certain it was around 1994. My father in law thinks he showed the value of the account each year on their taxes and paid any necessary income taxes each year as well. He then thinks we should only owe on the difference between the value when it was sold this year and when it was reported last year. The bank also did not report the type of gain or loss in the Form 1099B. I am not sure how to file this, or if my father in law is supposed to be filing it, or if anyone even needs to be filing it. Any help is greatly appreciated.

[TomYoung · Accepted solution]

Sounds to me like this could have been an UTMA or UGMA account, but I guess that's water under the bridge at this point.  But if it is an UTMA or UGMA account and your wife is no longer an minor she needs to take over the account.  Her parents haven't done a tremendously good job of managing it if they have no idea of the basis of the securities in the accounts.

"My father in law thinks he showed the value of the account each year on their taxes and paid any necessary income taxes each year as well."

He surely didn't "show" the value of the account each year in their taxes - nowhere is that required - and somebody had to pay the taxes in any case.  If it was an UTMA or UGMA account that should have been your wife, benefiting to some extent by lower tax rates.

"He then thinks we should only owe on the difference between the value when it was sold this year and when it was reported last year."

He's wrong.  He didn't report the value of the account last year and that would only work in any case if the IRS taxed you on unrealized gains, effectively re-setting the basis every year.  But you only are taxed on realized gains.  So if a stock has been in the account for 10 years and has appreciated greatly over those years then when you sell the stock you pay tax on the gain between the selling price and the original basis from 10 years ago.

"The bank also did not report the type of gain or loss in the Form 1099B."

Since the concept of "covered" securities was introduced in 2010 that should mean that the securities sold were not purchased in the 2010 - 2016 time frame and therefore should be Box E sales.

"I am not sure how to file this, or if my father in law is supposed to be filing it, or if anyone even needs to be filing it. Any help is greatly appreciated."

Since a 1099-B was created somebody has to report those sales.  The IRS will be looking for it.  How is the account out of which the securities were sold actually titled?  Whose Social Security Number is on the 1099-B? 

After 20+ years of non-attention it's going to be pretty darn hard to come up with reasonable, supportable bases for the securities sold.  Has the father kept 20+ years of broker/banker reports by any chance?

[ksosbe]

TomYoung,

Thank you for your response. My father in law had some brain trauma a few years back and it is making the whole process that much more difficult, but overall what you said about the account seems to be accurate. My wife was responsible for paying any taxes owed over the years. I am guessing he was thinking of the dividends that were paid out when he said it was shown each year.

"Since the concept of "covered" securities was introduced in 2010 that should mean that the securities sold were not purchased in the 2010 - 2016 time frame and therefore should be Box E sales."

Thank you, this is definitely helpful information.

"Since a 1099-B was created somebody has to report those sales.  The IRS will be looking for it.  How is the account out of which the securities were sold actually titled?  Whose Social Security Number is on the 1099-B?"

The "account name" is both my wife's name and her father's name, but the "recipient's identification number" displayed at the top of the 1099B appears to be my wife's social security number. I gather from this that my wife and I are then responsible for filing the form, which again is definitely helpful.

"After 20+ years of non-attention it's going to be pretty darn hard to come up with reasonable, supportable bases for the securities sold.  Has the father kept 20+ years of broker/banker reports by any chance?"

He said he has kept them. I'm not certain what I would be looking for in this information, but it does look like the entire account was sold off. Would it just be the principle that was added to the account since it was created?

Thanks again for any help.

[TomYoung]

"but it does look like the entire account was sold off."

Having the entire account sold off does make things easier.  If you can come up with a total basis it doesn't matter how you slice and dice it among securities; the net gain or loss will always be the same.

"Would it just be the principle that was added to the account since it was created?"

No, not really.  Any "reinvestments" - dividends, LTCG distributions, STCG distributions - would add to basis.  More problematic are "corporate actions", particularly mergers and acquisitions, that could affect basis DEPENDING ON HOW DAD reported them, and these things often get reported incorrectly.  All you can do is plow through that information and do your best..

[ksosbe]

Alright, I think this answers my questions. Thank you very much for your assistance, hopefully everything proves to be simple to figure out.