Why did Quicken go "back in time" and change the basis in this particular security?

Hi, Tom.

While I have NO knowledge of this actual fund or transaction, my guess is that it is not a "Quicken error", but a correctly handled transaction. When a fund pays a dividend and immediately re-invests the cash into additional shares of the fund, TWO transactions have actually happened - and both should be recorded and reported.

First, the dividend should be recorded, showing income to the shareholder, resulting in a cash increase in his fund balance (alongside his previously-held shares). This income is probably taxable to him - although there are several exceptions that might come into play, such as capital gains treatment for the LTCG distribution.

Second, the cash from the dividend is used to buy additional shares. These shares are, in effect, purchased for cash, just as though the shareholder had written a check to buy more shares. So the new shares have a tax basis equal to the cash paid for them.

The two transactions (dividend received and shares purchased) often are telescoped into a single entry, but the two "steps" of the transaction are recognized, both in the fund and on the shareholder's tax return.

That's the best I can do, given my limited knowledge of the details of your case and the fact that I've been retired for over 20 years and am not up on the latest tax rules. But apply that line of thought and you should be able to figure out how to handle the situation, both in Quicken and on your tax return. If you need help, consult with your own CPA or other competent tax advisor.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2013 Deluxe R 9 and Windows Live Mail in Win8 x64)

A few days ago I discovered that the total basis of my securities in a particular account had changed (increased) for unknown reasons and that this change extended itself backwards in time.

After considerable investigation I determined that the historical basis of a particular mutual fund - Oakmark Equity and Income Fund - had changed sometime between 12/10/2012 and 12/13/2012. Further research led me to discover that the change (increase) reflected all the way back to my first purchase of the fund on 12/16/2008. Although my correct basis in this fund at that time was $13,100.00 (and, indeed, Quicken showed that one lot with a basis of that amount), the TOTAL basis for all "lots" of this security (all one lot) showed an amount of $14,675.98; the difference between these two amounts was exactly the amount I had previously determined the basis of this particular account had increased.

Looking at transactions in my "live" Quicken file for this security between

12/10/2012 and 12/13/2012 (that's when the increase in basis became evident) I found two "reinvestment" transactions, one for ordinary dividends and one for a LTCG distribution. The amounts involved bore no relationship to the unexplained basis increase and deleting the transactions did not fix things.

Any thoughts on how to correct this Quicken error? I'd ask Quicken but it looks like Quicken really is only supporting (in the sense of "Live" help) the 2013 product.

Tom Young

Hi R.C.

I understand that reinvested dividends will change the basis of a security. However, what I am speaking of here is a basis change that has occurred almost 4 years *before* the 12/13/2012 reinvestment of ordinary dividends and LTCG distribution.

The 12/13/2012 reinvested dividend and LTCG distributions totaled $637.82 and if I look at the total basis of this security on 12/12/2012 vs 12/13/2012 it has increased by exactly this amount. But the total of the 9 individual lots of this security after 12/13/2012 amounts to $15,139.24 while Quicken is showing a total basis of $16,715.22, a $1,575.98 difference.

If I look at the Holdings in this account immediately after the first purchase of this security (12/16/2008) I see one lot at a cost of $13,100.00 but the total cost of this security at this time per Quicken shows as $14,675.98, the same $1,575.98. Using my 12/10/2012 Quicken backup and looking at the 12/16/2008 holdings, the one lot at a cost of $13,100.00 results in a total basis, correctly, of $13,100.00.

Something has occurred between the 12/10/2012 Quicken backup (when the sum of the lots equaled Quicken's total basis) and the 12/13/2012 Quicken backup (when the sum of the lots was less than Quicken's total basis) and I have traced that to some error that has occurred in the very first lot, an error that has nothing to do with the 12/13/2012 reinvestments.

Tom Young

As an update (and plead for help) I've tried various things.

CTRL-Z didn't fix things.

Deleting the first purchase didn't fix things.

Deleted all transactions and began the re-entry process with the first 12/16/2008 purchase. After making that one purchase I went back and looked at the Holdings as of 11/30/2012 and the $1,545.98 error was there. The lot itself showed the proper cost of $13,100 but the "summary" basis of all lots was listed as $14,675.98.

I don't want to go back to my 12/10/2012 backup - my last backup where the basis was properly stated - and try to make all the entries in all the accounts to bring that file current, but I'm wondering if there's anything at all that I might look at in that file, compared to my live file, that might shed some light?

Tom Young

Additional update:

I "sold" all shares of the security and the capital gain was calculated using the correct figure. The total basis in the account changed from an amount that included the initial overstatement in the security sold to the correct basis

Tom Young

Finally found the answer. I had owned Oakmark Equity and Income fund, and sold all shares, prior to that "first" purchase of 12/16/2008. I had figured the old purchases and sale (at a loss) were water under the bridge at this point and irrelevant to the problem with my current holdings, which began with that 12/16/2008 1st lot purchase. That turns out not to have been the case.

When I sold my previous holdings of OE&I I had incurred a loss. Somehow, sometime between 12/10/2012 and 12/13/2012, Quicken no longer reflected that loss, though cash in the account was unaffected. The loss "magically" showed up as an increase in basis in my current holdings, though not identified with any lot. Deleting that pre-12/16/2008 sale and re-entering it fixed the situation.

Tom Young