A Stock Mystery

[JohnH]

A client gives me her statements that incllude buys. I save these in case she sells. This year she sold all her IBM. I looked back and I have two purchases in 2006 of 100 shares and 200 shares. Then for 2008 she bought two more blocks of 100 each.Total 500. She sold 300 later in the year. She says she has none left. Yet there were no sales in 2006 or 2007 of IBM.

Another mystery is what happened the the Big Charts website. It is very hard to find the historical prices for me now. I did see on Yahoo that the last split was in 99 and I didn't see any merging.....

Any ideas?

Others have covered this pretty well, but I'll jump in with another possibility. Did she have any stock certificates issued in her name rather than being held in street name? Seems like if this happened with the 2006 purchase you'd have another 1099-Div from IBM or from their DRIP servicing company for the intervening years. But it's possible that this happened with the 2008 purchase and maybe the paperwork just hasn't caught up yet.

[erchess]

Thank you for the frank reply.

No disrepect intended, but if you are unwilling to look for facts, it does not appear as if you offer much to the client in the way of service. I look at it as if my clients come to me for help and service. If I am only willing to plug numbers into a computer program, without offering help when needed, there is no service to cause them to want to use me in the future.. I obviously have a different type of clientle.

If this works for you, all the more power to you.

LT

Just in case I was unclear - I will willingly COMPUTE numbers for the return from records given to me by the client (although if time spent on this for one return exceeds half an hour there is a time charge in addition to my normal forms charge. Probably the most difficult such computation I have actually done is to compute basis in cases where the client bought a stock or fund over many years then sold just some of the accumulation. I can do it and do it right and will do it but I do charge extra because building too much of this into my forms charge would be unfair to clients with the same forms who need less of this computing.) What I try to get out of doing is getting the records from third parties or historical data. I will do even that but I want the client at my side or on the three way call so that they can ask the party in question to give me the time of day and so that they learn how they could have done it for me and saved themselves some cash.

By the way, what do you do if a client states that he is sure he bought the stock on a given date or between this date and that date but he can't prove even that and he has no idea what he paid and he has changed brokers since the purchase?

[Larmil]

By the way, what do you do if a client states that he is sure he bought the stock on a given date or between this date and that date but he can't prove even that and he has no idea what he paid and he has changed brokers since the purchase?

I believe the rule is "If you don't know the basis, the basis is zero." At least that is how it is in my office. Please tell me if is different and one can 'guess' the basis.

[erchess]

Cohen Rule

I believe the rule is "If you don't know the basis, the basis is zero." At least that is how it is in my office. Please tell me if is different and one can 'guess' the basis.

I believe stock basis is covered by the Cohen Rule. The essence of the rule is that when there is persuasive evidence that a number favorable to a taxpayer exists but doubt as to the value of the number, we do not go with a value of zero but we do go with the most unfavorable to the taxpayer value that is at all reasonable. It is also necessary under Cohen that there be some reasonable and verifiable explanation (other than willful poor record keeping for example) why full records do not exist. For example it would most likely suffice if there were records but they got burned up in a fire that was reported in the newspaper or attended by the local FD and attested in its records. So let's say he has a record he made or got from the broker and we know that the stock was bought in a given period but the price is unreadable then we may reasonably infer that it was bought for at least its low price of that period. In the event there was a fire we are on shakier ground but I think we can trust the memory of the taxpayer if he seems to be of sound mind and forthright.

[S T]

Timely Post

Erchess, then can you assist me or my taxpayer on this one. Father of the taxpayer gifted 100 shares of a privately owned Corportation in 1981, and of course who would have "dreamed" to mention what the value of that stock was at the time of transfer.

Stock split 10/1 in 1991, and in 2008 the taxpayer sold the stock for a "huge" amount. You guessed it, no one knows what the basis is.

Dad has since passed away, and there are no records available. Taxpayer has tried to contact the company, which by the way is no longer privately owned, they sold and it is now trading. No one CEO, CFO, or others will return the taxpayers emails or phone calls.

Both Taxpayer and myself "presume" there is a basis in the original 100 shares, minute as it might be, when 1000 shares were sold. But of course the t/p could use all of the basis that he can legitmately place on the tax return.

Any thoughts on how to go about arriving at basis at the time of gift, with no records, not even through the internet. I spent a few hours trying to trace, and could find nothing.

????

Sandy
:

[Larmil]

I believe stock basis is covered by the Cohen Rule. The essence of the rule is that when there is persuasive evidence that a number favorable to a taxpayer exists but doubt as to the value of the number, we do not go with a value of zero but we do go with the most unfavorable to the taxpayer value that is at all reasonable. It is also necessary under Cohen that there be some reasonable and verifiable explanation (other than willful poor record keeping for example) why full records do not exist. For example it would most likely suffice if there were records but they got burned up in a fire that was reported in the newspaper or attended by the local FD and attested in its records. So let's say he has a record he made or got from the broker and we know that the stock was bought in a given period but the price is unreadable then we may reasonably infer that it was bought for at least its low price of that period. In the event there was a fire we are on shakier ground but I think we can trust the memory of the taxpayer if he seems to be of sound mind and forthright.

I have an actual situation. The stock was given to my client several decades ago. My client is unable to find out when the when the original owners (long since deceased) obtained the stock and their basis. They stock was Wrigley and the sale price was $300,000 +. Can you give me a cite to use the Cohan Rule in this type situation?

[AZ-Tax]

I had a client like that once, notice I said I had...

New client walks into my office gives me his tax documents and there was the 1099-B w/no cost basis. I asked him I need the cost basis. He replied "dont you have them". I met and talked to this person for the first time when he walked in my office with his tax docs and I was suppose to have his cost basis on his stock sales. Say it isnt so. That pretty much tells you the type of unorganized full of #### person this ex client was.

Late in day been at it for about 15 hrs. Need sleep, need sleep

[erchess]

Sandy and Lamil

Lamil - Here is a passage from Kleinrock that may be of some use to you.

(b)(1)Amount allowable as a loss

Code Section 165(b) limits any loss allowable under Code Section 165 to the taxpayer's adjusted basis in the property. [27] As noted in Section 206.4, the burden is on the taxpayer to establish his basis in the security, and failure to establish basis can result in a denial of an otherwise allowable loss. [28] Although the Tax Court has reluctantly applied the rule of Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) (generally allowing courts to estimate the amount of unsubstantiated expenditures) to approximate basis when the taxpayer has established a basis greater than zero (Egly v. Commissioner, T.C. Memo. 1988-223), it does not favor this approach, and this option will not be available absent solid evidence of a positive basis. Coloman v. Commissioner, 540 F.2d 427 (9th Cir. 1976).

There was also a case written up in the NAEA Journal within the last six months where the Tax Court applied Cohan to the case of an immigrant from Afghanistan who had trouble establishing basis in a jeweled gold headdress of Afghan origin that had been stolen in this country.


Sandy - Do you even know what kind of corp it was in its early days? For example when Dad put money or property in he created basis but if it was an S Corp perhaps he deducted losses thus reducing or eliminating his basis. Then again perhaps he contributed more capital. I guess what I am saying is that to me it's not crystal clear that the shares had a basis when given to the son. For Cohan to apply it must be provable that some number existed and we are only guessing at its value not its existence. If the old tax returns could be recovered they might contain proof one way or the other.

[S T]

Thanks

Erchess,
Thanks for your thoughts, there are no records left from Dad what so ever. All I know is that Dad gifted 100 shares, so his basis could have been $ 1 or $1,000 per share. Son, my taxpayer has no idea.

Then the t/p is additionally dealing with a 10/1 stock split so that increases the capital gain even more.

I am encouraging the t/p to err on the side of conservative without any information, and even the t/p is saying that the 100 shares might be worth $1,000. T/p has tried to contact the company to talk to someone, but no one will return his communications or phone calls. Even the son (my t/p) is an ex employee of the privately owned company. Shows you what happens when it goes from a private company to a Major public traded corporation, particularly in these times!

Any other suggestions would be welcomed!

Thanks,

Sandy

[DTS]

Sandy

It's just a thought, but I've had a couple situations like this. Finally, I contacted a broker who had been after some referral business from me and she helped a couple of my clients. I was very appreciative, as she and her secretaries did a good job tracking the numbers down. It did take a few days, but I got the info, she got some business.

Do you or your client have someone like this that you may be able to tap into?

D

[Larmil]

erchess

Thanks for the information.

[Davc]

Erchess, then can you assist me or my taxpayer on this one. Father of the taxpayer gifted 100 shares of a privately owned Corportation in 1981, and of course who would have "dreamed" to mention what the value of that stock was at the time of transfer:

Value at the time of the gift means nothing. The basis would be Father's basis.

[FEDUKE404]

Cost basis vs gift tax issues

Value at the time of the gift means nothing. The basis would be Father's basis.

RU sure? I thought value of the transferred item at the time of gifting WAS an issue for any gift tax issues.

Obviously the cost basis transfers from the donor, but any gift taxes paid could come into play and even modify the donor basis. Correct??

FE

[HiltonL]

I like this topic, it's very interesting.

I believe in Larmil's Wrigley case, I would be forced to use zero as a basis. Given the facts of original basis being "decades ago" any actual basis would be minute. Even if the TP did pay for the research, the difference in tax might be 15% of a thousand or two, so $300? How much cost do we want to incur to get that last % of accuracy?

For JG EA's original question, I believe in the black-and-white of the statements more than I believe in a TP's statement that he/she no longer owns the stock. By the way, there is no chance that a giant corp like IBM would reverse-split. That's preposterous.

For ST's private corp goes public question, there is no reasonable way for somebody today to place an accurate value on the shares of the private corp that were gifted. My basis for this belief is that minority shares of private corps are commonly discounted when given as gifts and you have no way of determining that discount without inside knowledge. And that's on top of the fact that you have no timely valuation of the corp at the time of the gift.

Wow, that's 2 cents x3

[S T]

Actually Need Both

Actually I would need both

Father's Adjusted Basis at time of gift and the fair market value at the time of gift

However, I have no figures whatsoever and more than likely no one filed a gift tax return.

Sandy