Broker Can't Calculate Gains Due "Insufficient Information"

Since this is for 2010, the reporting does not have to follow the new rules that apply to 2011. You can compute the basis as the sum of the following:

(1) Amount(s) originally paid for shares of the fund (2) Reported capital gains on 1099's, on which you have already paid capital gains taxes, but that did not result in distributions (3) Income distributions from the fund on which you have paid income taxes, and that were reinvested in new shares of the fund.

It is reasonable to spend a little time going through statements (from the purchase date through 2010) to calculate these. Keep notes of what you did on file for the next at least 3+ years.

Steve (not a tax pro)

It has always been the owner's responsibility, not the broker's, to figure the gain/loss. Many brokers will add a supplement to the 1099- B that has information about the gain/loss, but it always comes with a caveat not to rely on it for tax purposes. Over the next few years there will be gradual implementation of rules requiring brokers to track basis, but I think it would be extremely foolish to rely on them to get it right. When all that's fully in place the IRS might not challenge their numbers, but you could well wind up overpaying your taxes if they get it wrong, which I fully expect them to.

Back to your problem. See the discussion of how to calculate gain/ loss for mutual funds beginning on page 45 of Publication 550. Don't forget to include reinvested distributions in your basis calculation.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Using the information provided by other posters, your daughter reports the income on HER tax return.

It will continue to be your responsibility even after the reporting requirements kick in. Remember that this is a new requirement on brokers, not a change of the laws affecting taxpayers. See, e.g. Fidelity's summary of cost basis legislation (especially items 6-8) at:

For example, brokers are required to report wash sales only if the CUSIPs match (actually identical securities), while an individual must report a wash sale if the securities are substantially identical - a broader standard. (Most commentators think that it is a wash sale if you swap one S&P 500 fund for another, but brokers won't report this.)

Yes, the one time I personally had such a statement (from American Century) it seemed to understate the basis by 15% or so. My theory is the true basis is the sum of a large number of values, and if they miss any of them, the number will be too small.

One avoids the issue entirely if the mutual fund is in a retirement account.

Steve

But those broker supplied data will be so much better than the blank look you get when you ask your client for basis data.

The first basis number reported on a 1099 for me was completely wrong. Just as I expected!