How to report tax info I don't have?

April 10, 2008 1:48 PM

What date acquired and cost basis should I put for two items reported on a 1099-B, when there are several unknowns?

I have this on a 1099-B:
10/26/07.......Avaya cash merger at $17.50 per.......quant:16.......box 2: $280.00
4/5/07..........LSI corp cash in lieu............................................box 2: $7.94

These companies came from Lucent, which my grandmother gave me years ago, before she died, and I don't know what to put for date acquired and for cost basis.

For date acquired:
- 1947 is when my grandmother's husband bought att, which both of the above eventually came from.
- 1958 is when my grandmother's husband died. I don't know whether he gave Grandma att before he died, or whether she inherited it.
- Roughly late 90's is when Grandma gave me Lucent, which had come from att.
- 12/1/06 is the date that Avaya spun off Lucent.
- 10/26/07 and 4/5/07 are the dates of the reported events on the 1099-B.

For cost basis, I know that the basis of a gift is the giver's basis. But I
don't know:
- what Grandma or her husband's basis was, and which of those is relevant.
- what percent of the investment that had that basis they gave to me.
- what percent of what they gave me became the two companies in question.

If it matters, my mom thinks that when I was given Lucent, it was worth
about $25 per share, and $9500 all together. Now, all the parts taken together are worth much, much less.

I know that, to be safest, I could treat the entire $287.94 as capital gains even though they may actually be losses. This would cost me $75 in Federal tax, I'm not sure how much in state tax, plus the value of whatever loss I could have written off against other gains. I could try to find a tax advisor to help, but I suspect that would cost more than I'd save (plus, at this time of year, it would be a challenge to find one). I've tried the IRS help line and the investment firm where these are now held, but I reached dead ends because of the information I'm missing.

posted by daisyace to work & money (8 comments total)

I'm not an accountant and I'm not at all sure exactly what transactions are going on in your description, but I'll offer the following:

1) It seems highly unlikely that you'd need to know what your grandparent's basis costs were. As far as I understand, the principle underlying the cost basis calculation is to determine what the value of this thing was when you acquired it in order to fairly determine your capital gains. The basic example would be if your grandma gave you 100 shares of AT&T when they were valued at $20 per share and you sold them later at $25 per share you would end up showing 100 x ($25 - $20) = $500 worth of capital gains. What your grandma originally paid for her shares would be irrelevant to you.

The key is to figure out when you got the things that you got and what they were worth at the time. I imagine things become somewhat muddled when we're talking about things like spinoffs, which brings me to the next point.

2) Have you looked here? There are a bunch of basis calculation worksheets available for Lucent/Alcatel/Avaya stuff. I'm not sure which of these, if any, would be applicable to your situation. Most times, when a company undergoes mergers, spinoffs, etc..., their Investor Relations department can provide some kind of guidance.
posted by mhum at 2:39 PM on April 10

It seems highly unlikely that you'd need to know what your grandparent's basis costs were. As far as I understand, the principle underlying the cost basis calculation is to determine what the value of this thing was when you acquired it...

mhum, I don't think this is right, because the IRS's instructions for Schedule D say, "The basis of property acquired by gift is generally the basis of the property in the hands of the donor." (Do you understand this differently?)

The worksheets look like, once I know the basis of Lucent, I might be able to determine the basis of the spinoffs, but I don't know the basis of the Lucent.
posted by daisyace at 4:27 PM on April 10

Ah. You are absolutely right. I forgot about the rules for gifts. According to this and this, you could only use the value at the time of receipt if your grandma was taking a loss when she made the gift. You'd need to know the original purchase price if the stock was worth more when you received it than when your grandparents bought it. Judging by the historical quotes found here, there's a possibility this is the case (don't forget to factor in all the splits), although I don't know how the Lucent spinoff was calculated.

If I were in your shoes, since real tax guidance this time of year might be scarce and expensive, I'd probably make a good faith effort to enter some kind of respectable basis -- this article seems to recommend taking an average of the high and low, but this guy recommends using simply the low (probably just to be safe).

The IRS website is remarkably unhelpful with regard to unknown cost bases (nothing useful in either Pub. 550 or Pub. 551. However, it appears that the relevant section of the tax code is §1015(a):

[...] If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner.

Which sort of supports a kind of "best guess" approach. It's likely that your best guess wouldn't be that far off from the government's.
posted by mhum at 5:38 PM on April 10

With splits, mergers, spinoffs, etc., figuring out the basis for AT&T-related stocks has gotten so complicated, even when you have all the necessary information, that there's software to help you figure it out. Said software costs more than you'd stand to save. So would a tax professional. As a coward (and non-tax-professional), if it were me I'd just call the whole thing a capital gain.
posted by magicbus at 6:32 PM on April 10

I had almost exactly the same problem. I know zip about investments and tax law, but the agent that's in charge of my grandparents' accounts was able to help me out very easily.
posted by ErWenn at 7:51 PM on April 10

We had a client with the exact same situation. We callled the LSI pure capital gain since it was so miniscule. For Avaya, I believe we went back to the spinoff date and called the price of the stock on that day his basis and reduced his Lucent basis by that much.

You could just claim the whole thing as LT capital gain an not screw with the Lucent basis. It's all long term gain and even if you get taxed at the 15% rate it's still just $42. However, I do recall that the stock has dropped since the spinoff, so you would actually be passing up more than that. But, like I said, you'd recoup it when you sold Lucent and would save you the hassle of calculation. And the IRS won't throw you in jail for letting them hang on to your money for a while.
posted by odragul at 8:07 PM on April 11

ha! I just reread your post and realized I missed your point entirely. I have no clue dude. You could look to the spinoff date like I did, claim your loss and just punt the issue until another day.
posted by odragul at 8:09 PM on April 11

I received some really valuable help off-thread. For date acquired, I’ll put 1958, when my grandma inherited it. For cost basis, here’s what one has to do:

Start with the number of shares of Lucent I have now, which is 39. By consulting historical data for Lucent and at&t, determine that 39 shares now would have had to come from 5 shares of 1958 at&t, because the following occurred:

3:1 AT& T split 4/24/59
2:1 AT&T split 5/28/64
9/30/96 Lucent spin off (.324084 shares LU per 1 T)
2:1 Lucent split 4/1/98
2:1 Lucent split 4/1/99

5 x 3 x 2 x .324084 x 2 x 2 = the 39 shares I have. AT&T had a low of $167 in 1958, so that x 5 shares = $835

On 1/1/84, att had a divestiture, which changed the basis to .285 of the former basis.
And, on 9/30/96, Lucent spun off, and .2799 of the att basis was allocated to the Lucent shares.
Next, on 10/2/2000, Lucent spun off Avaya, the first item on my 1099-B. .05476 of the basis was allocated to Avaya.

So, $835 x .285 x .2799 x .05476 = $3.65. This is my cost basis for the Avaya.

The big outcome of all that figuring? I owe capital gains on $280 minus $3.65 for Avaya, instead of on $280! But, I’m really glad to know it, both because it taught me how to handle this kind of question for the future, and because I always would have anxiously wondered whether I was throwing away lots of money by reporting it all as a gain. (As for the LSI, because it’s cash in lieu and now I know the numbers are so small, I’ll just report it as a gain.)

Thanks all! Best answer goes in spirit to the off-thread help I got, but Mhum, the kinds of worksheets and historical stock price data you linked turned out to be very useful. And, magicbus, even though the link you provided was from a company trying to dissuade me from figuring it out without their software, it actually does explain how to do it without the software, which was also helpful.
posted by daisyace at 8:15 AM on April 12