Tuesday, May 10, 2011


Over the past 40 tax seasons perhaps the biggest obstacle to promptly and correctly completing a client’s Form 1040 has been getting cost basis information for stocks or mutual fund shares sold by clients during the year. It is the rare client indeed that keeps good records in this area and provides me with an accurate cost basis for all sales.

Some year-end consolidated brokerage statements include purchase information, and I have always attached copies of this info to my copy of the return. So there are occasions when I can look the cost basis up by going through past year copies, although this can be time consuming.

In recent years most year-end reports include a gain and loss report that for the most part will tie in to the 1099-B. I admit that I take these reports at face value; I assume they are correct and do not spend time verifying the cost numbers. (I will, however, compare mutual fund Average Cost Basis numbers to “first-in, first-out” numbers, if available, or in some cases required, to see which method is better.) But if all the purchase were not made through that particular brokerage house cost basis info may not be available for all transactions, and there are occasionally gaps.

Clients are usually loyal to a particular broker, as they also are to a particular tax preparer, and follow him/her as he/she goes from “house” to “house”. One would think that as long as the client has had the same individual broker over the years that the broker would bring cost basis information with him/her on each move and enter this info into each new broker’s system – but this is not always true.

Tax law now requires brokerage and mutual fund houses to report cost basis information on the Form 1099-B – but it will take many years for this practice to fully phase in and become inclusive of all transactions.

I often find myself having to contact a client’s broker to get cost basis information. Initially I found them generally lazy. Looking up cost basis info does not produce a commission, so it was not a priority. I would get answers like, “he bought 100 shares of XYZ for $5¾ per share in 1987”. For one thing he did not buy 100 shares for $5¾ per share. The transaction included various fees, charges and taxes, so the per share cost was actually more than $5¾. And the client reinvested dividends over the years and now has 426 shares.

I have been able to develop a good relationship with most of the brokers of my more active investors (a few with up to 50 pages of sales transactions per year), who provide me with gain and loss reports and will email me copies of the year-end consolidated statements (original and one or two corrected) as soon as they are available. If I have a question about a sale they promptly reply to my email. I appreciate the attention and assistance I am given by these brokers, and applaud them for providing good customer service.

This year a client gave me with her tax “stuff” a 1099-B for the sale of her entire investment in a mutual fund. There was no accompanying Average Cost statement, and, of course, the client had no idea of the cost basis. The most she knew was that her mother had opened the account for her about 20 years ago with $500.00 and never added anything else, but let the dividends be reinvested over the period.

The account statement referenced a broker and investment firm. The client was not an investor, and her only relationship with this broker was the purchase of the fund by her mother about 20 years ago. But I thought I would give it a shot, and wrote to the broker identifying myself and explaining the information I needed.

I did not hear anything back for a week or so, and assumed my inquiry had been ignored. But about three weeks after the mailing I received a package from the broker with a photocopy of every single annual statement for the account from the day of the original $500.00 purchase through 2010, showing all of the dividends and capital gain distributions that had been reinvested for the 20-year period. This was perfect – exactly what I needed. I couldn’t have asked for more.

So this broker is my MVB (Most Valuable Broker) for the 2011 tax filing season. I would like to be able to thank this person publicly, so she gets the credit she deserves, but I am afraid if I mention the name of the broker I will receive a comment accusing me of breaking client privilege and federal privacy laws.

If you are reading this, and you know who you are, my sincere thanks for your help with my clueless client’s 2010 return. Your efforts, above and beyond the call of duty, were very much appreciated. All my clients’ brokers should be this cooperative.


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