What is our liability?

[NotEasy]

Clients have thousands of trade (The Form 1099-B has almost 500 pages). I understand we can report the totals in the Form 1099-B provided by the brokerage firm on the Schedule D and then mail in the statements by using Form 8453. But I also want to know how much our responsibility is in case the information in the 1099-B is incorrect such as wrong cost basis, etc. Are we liability for the mistakes on the Form 1099-B if we depend on it to file the Schedule D?

We are talking about thousands of trades here.....

[Greenbriar]

Our liability

I would think the taxpayer is ultimately responsible for the accuracy of Schedule D cost basis - not you the tax preparer. It's not secret the 1099B data provited by the broker may not be accurate.

[Lion]

We have to deal with wash sales, that stock our client told us they inherited from grandma but the broker lists as ST, and other situations. You do have to read through the 1099-B and year-end statement.

[NotEasy]

We have to deal with wash sales, that stock our client told us they inherited from grandma but the broker lists as ST, and other situations. You do have to read through the 1099-B and year-end statement.

How is it possible to read through like 500 pages with 12,000 transactions? I don't believe any tax professional would be able to provide service to such a client if he has to review all the 12,000 trades. I just wonder if there is a protocol accepted by the IRS to handle such a situation.

[Roberts]

I'm sorry but 12,000 transactions????? wow.

1099's are getting better with the new rules in place that brokers MUST provide good numbers going forward on cost basis. If your numbers match up closely with the numbers on the 1099, I'd have a hard time believing the IRS is going to be interested in auditing a return with 12,000 transactions.

If you are worried about liability, I would have the client sign a letter stating they understand you relied upon the information provided by the client and did not review all 12,000 trades for accuracy. Unless they are willing to pay $5 per transaction for that service? (If they are, have them call me, my wife has a lot of free time.)

What's your estimate for the ending value of the portfolio?

[Lion]

Wash Sales

With that many trades, I'd be concerned about wash sales. You have to reduce the cost basis by the disallowed wash sale amounts. That's just one example of something you or your client will have to do or review that the broker already took care of that. I just completed a client where their broker listed the disallowed amounts in a separate column, so I had to use the codes and adjust the basis on Form 8949. It might be just a simple subtraction, but you have to do it. I can't afford to reimburse my clients for substantial underpayment/accuracy related penalties.

[dtlee]

I agree with Lion and have often wondered how other preparers handle the situation.

I have frequently been told to just put in the totals and attach the statements but I have felt the need to review the statements in detail anyway, so it is not much more to transcribe the numbers and make sure I understand whether the statements reflect the trades as the IRS wants it.

I have a couple of clients with over 250 trades. I have found wash sales that went across multiple brokers even with these relatively small numbers of trades. Sometimes the clients do not even know that they have bought and sold the same security with different brokers because of the way the accounts are handled.

[BHoffman]

If one brokerage firm is reporting all of this, the client's financial advisor at that firm might be able to supply you with some sort of summary report of ST..LT..Gains..Losses..and might even include the total wash sales. Won't hurt to ask.

[NotEasy]

If one brokerage firm is reporting all of this, the client's financial advisor at that firm might be able to supply you with some sort of summary report of ST..LT..Gains..Losses..and might even include the total wash sales. Won't hurt to ask.

Yes. he has everything that you mentioned already. But my question is about our liability to rely on those information supplied by the brokerage firm. There are over 12,000 trades, obviously no one can possibly review every single trade. My concern is about my liability in case some information provided by the brokerage firm is incorrect.

[Burke]

You are not responsible for the cost basis information that the brokerage provides. Just like most other documents, we have a responsibility to question something that is totally out of left field that we feel may be fake, manufactured, etc. but this is not one of those.

[Questionguy101]

A related question

Would you charge more with so many trades? Your client would probably tell you that all the information is in the 1099-B already and all you need to do is to enter the total in the Schedule D. However, even though we will not be responsible for the mistakes of the brokerage firm, like Burke has said, the possibility of something goes wrong in the future increases as the number of trades goes up. And we will still need to put in our time to take care of it in case something happens. So I just don't feel being fair to myself not to charge more.

[Lion]

Yes. he has everything that you mentioned already. But my question is about our liability to rely on those information supplied by the brokerage firm. There are over 12,000 trades, obviously no one can possibly review every single trade. My concern is about my liability in case some information provided by the brokerage firm is incorrect.

Yes, he has everything such as wash sales or other basis adjustments already. Now, you have to work with the information he gave you. Did you subtract disqualified losses from wash sales from his cost basis? Did you make the other adjustments he gave you? If you don't report everything he gave you, then you are right to question your liability. It could be huge.

[erchess]

Charge for stock trades

I charge strictly by time now and it eases my mind about what to charge. When I charged by the form and sometimes by the section of a form I charged one dollar for the first five trades and another dollar for the second five trades and one dollar for each trade past number ten. For some reason I seldom had clients with over ten trades because I never could make a prospective client understand why entering a trade in my computer was worth a dollar especially if I used the "simple report and mail docs in" approach.

[Gary2]

Did you subtract disqualified losses from wash sales from his cost basis?

Or did the brokerage house already do that with the basis they reported?