Vanguard Brokerage cost basis problems

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alvinsch
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Vanguard Brokerage cost basis problems

Post by alvinsch »

I've been fighting Vanguard Brokerage for 7 months now trying to get them to fix their cost basis and tax reporting software but to no avail and I don't know what else I can do. They admit they have a software bug but after 7 months they've been unable / unwilling to fix it (continuously lying over the 7 months that they were working on it). In the meantime, I can't file my 2015 taxes without assuring an audit and I can't tax loss harvest shares in the effected security because they wiped out my cost basis information.

On 11/26/14 the Kinder Morgan merger became effective so my KMP units were merged into KMI shares in a taxable event at a reported price of $41.535 per IRS regulations. After the merger the cost basis information was all correct at Vanguard. In June of 2015 I sold some of those shares at a loss for tax loss harvesting purposes, by using specific identification. My next statement showed the transaction correctly and showed the correct loss resulting from the sale.

Then in 2016, Vanguard wiped out the cost basis of almost half my shares (the shares from the 11/26/14 merger of my KMP units), and since their software believes the specifically identified shares no longer exist they selected the lowest price shares to report on my 1099B (i.e. so instead of a $41.535 basis they used shares with a roughly $11 basis for tax reporting).

I reported this problem to them in early February and followed up roughly every two weeks since then but apparently have only been repeatedly lied to without a fix in sight. In July, I finally was contacted by the manager of my flagship representative who admitted that this didn't affect many people so it had a lower priority (and by inference that all the previous assurances that it was being worked on were lies).

I've repeatedly requested they just do a manual fix of manually entering the correct cost basis information but they have no clue what that even means, tho we were allowed to enter our own cost basis info prior to the IRS deadline (i.e. it's third party software which they have no knowledge of).

At this point, I don't know what to do. If I file my 2015 return I will likely get audited because the reported cost basis information sent to the IRS will not match. If I give up and use Vanguard's admittedly wrong numbers I will pay an additional $2400 in taxes (and then get audited if they ever do fix the problem). I could try to send a letter to the IRS explaining the nature of Vanguard's incompetence and mismanagement but would that do any good?

Likewise, I can't sell the existing high cost shares for tax purposes because they don't exist in the Vanguard's cost basis. Seems like this is also a clear violation of IRS regulations of not keeping track of cost basis for shares purchased in 2014 (my account shows all the shares thank goodness but the cost basis section only covers some of the shares I own).

So bottom line is who do I register an official complaint to? Figured I would start with my State Divisions of Securities. I could also go to FINRA but isn't this just a securities industry group that won't do anything. Is there any way this would get traction with SEC? Not clear there are any SEC securities violations per se but just account mismanagement and violation of IRS regulations.

Are there any other methoda available to apply some leverage on Vanguard to fix their software as currently they don't seem to give a rat's xxx. Shocking that the Vanguard brokerage can stay in business when they can't even handle IRS required cost basis tracking.
livesoft
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Re: Vanguard Brokerage cost basis problems

Post by livesoft »

I don't understand why you cannot submit your tax return and make an adjustment to the reported basis and indicate that on your return.

I think it is unlikely that the IRS will "audit" you. They may send a letter in a few years that you can then answer them. By then Vanguard may have even fixed the problem and sent you corrected 1099s.

Here are the instructions for Form 8949: https://www.irs.gov/pub/irs-pdf/i8949.pdf
Please read what they say about
You received a Form 1099-B (or substitute statement) and the basis shown in box 1e is incorrect....
Your tax software probably knows what to do as well.
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HueyLD
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Re: Vanguard Brokerage cost basis problems

Post by HueyLD »

Contact Karin Risi, managing director of Vanguard's Retail Investor Group and CEO Bill McNabb (if necessary).

Your prolonged cost basis problems are totally unacceptable.

You may want to consider moving your assets to a firm with a competent system.

Good luck.
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in_reality
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Re: Vanguard Brokerage cost basis problems

Post by in_reality »

That's the downside of Vanguard. A bad problem for you, but not for so many so they don't fix the problem.

My brokerage account was in a state once where my assets were mistakenly placed in someone else's trust, someone's estate and someone was named as beneficiary to my IRA [this done I believe to move my missing assets back to my account]

I said fix your system so it doesn't happen to anyone else because we both know how it happened and could happen again. They said no and I said yes. They responded by freezing my assets and saying I spend too much time overseas.

Vanguard has great funds, but if I had died at that moment, there'd really have been no way for my wife to know that the buys I'd placed and received transaction confirmations on didn't actually make it to my account. I was moving over and they were transactions larger than a years salary for me.

For everyone's sake, you should transfer out and file a complaint against their inaccurate system.
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alvinsch
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Re: Vanguard Brokerage cost basis problems

Post by alvinsch »

livesoft wrote:I don't understand why you cannot submit your tax return and make an adjustment to the reported basis and indicate that on your return.

I think it is unlikely that the IRS will "audit" you. They may send a letter in a few years that you can then answer them. By then Vanguard may have even fixed the problem and sent you corrected 1099s.

Here are the instructions for Form 8949: https://www.irs.gov/pub/irs-pdf/i8949.pdf
Please read what they say about
You received a Form 1099-B (or substitute statement) and the basis shown in box 1e is incorrect....
Your tax software probably knows what to do as well.
Well that is the question regarding what will the IRS do with non matching reported basis. If I had any confidence that Vanguard was going to actually fix this at some point, I would do as you say because eventually I would get a corrected 1099B. However, after having 7 months to fix a small problem and failing, I really doubt they intend to ever do anything about it.

It's also more complicated than just changing the basis because even if I make the basis adjustment in the 8949 adjustment field, it will still not match the IRS information because I sold "covered" shares but Vanguard's bug has them reported as "uncovered" shares. I can't modify those designation because that is forced by the tax software based on the purchase dates.

I guess I wait until 10/15 to file and then attach a complicated note trying to explain Vanguard's mismanagement.

Anyway thanks for the reply.
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alvinsch
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Re: Vanguard Brokerage cost basis problems

Post by alvinsch »

in_reality wrote:That's the downside of Vanguard. A bad problem for you, but not for so many so they don't fix the problem.

My brokerage account was in a state once where my assets were mistakenly placed in someone else's trust, someone's estate and someone was named as beneficiary to my IRA [this done I believe to move my missing assets back to my account]

I said fix your system so it doesn't happen to anyone else because we both know how it happened and could happen again. They said no and I said yes. They responded by freezing my assets and saying I spend too much time overseas.

Vanguard has great funds, but if I had died at that moment, there'd really have been no way for my wife to know that the buys I'd placed and received transaction confirmations on didn't actually make it to my account. I was moving over and they were transactions larger than a years salary for me.

For everyone's sake, you should transfer out and file a complaint against their inaccurate system.
Yes, it would be better for everyone if there was a real cost to their incompetence so they would have incentive to fix their systems. Evidently it is more "efficient" to screw the few, than fix their systems. I guess I arrogantly thought having around an 8 figure account with them would matter but it clearly doesn't and is irrelevant compared to institutional accounts. I can't imagine how dismissive they would be of small accounts. Buyer beware!!!
Tier1Capital
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Re: Vanguard Brokerage cost basis problems

Post by Tier1Capital »

Vanguard was/is world class in developing revolutionary, low-cost financial products. Unfortunately, IMO, Vanguard fails to provide world class customer service. Great news is, you can have the best of both worlds by moving your account to Fidelity or Schwab. As previously suggested, override Vanguard's 1099, keep your records if IRS later questions anything, and transfer your account elsewhere. If you don't like the menu of low cost offerings at the new brokerage firm, you can still invest in Vanguard ETFs.
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celia
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Re: Vanguard Brokerage cost basis problems

Post by celia »

I would just file the taxes as usual. Most (all?) tax software programs will ask if the entered basis matches the information on the 1099-B. Just enter NO. It then should ask what the 1099 says. When you are done, look at Schedule D and Form 8949, which should be generated to see if they are correct. Form 8949 has space to show what the correct basis is and what the 1099 reported. Also note the text at the bottom of 8949 which EXPECTS that sometimes the 1099-B is not correct.

Since your return is processed by a computer you have then alerted it that your return will NOT match what they received on a 1099-B. I had to do this on a return the first year the 1099s reported the basis. Three holdings were reported wrong on it. But the IRS never contacted us as I reported the discrepancy as described above. [The brokerage also got a letter from us with a copy of these forms with a warning to fix things or we would leave.] I think that you are also fine because you also give them the date it was acquired and if your reported basis (and number of shares) was reasonable for that date, it will be ok.[excluding merger data in your case]

But to avoid any future follow up with the IRS, I would file by paper and attach a short free form note referencing Form 8949 that describes the merger and new share price. Also attach a copy of the "sell" confirmation with the correct price. Your SSN and name should be at the top of each page.

Of course, I'm sure that you will hold onto appropriate paperwork showing the basis for shares you still hold as you will have to do this again some year.

Don't take it personally, but you are in a very small group who is impacted by this. Just work around it as I described and move on.
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livesoft
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Re: Vanguard Brokerage cost basis problems

Post by livesoft »

The OP expects the IRS computers and IT systems to be better run than Vanguard's. I personally don't think that is the case.
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FIREchief
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Re: Vanguard Brokerage cost basis problems

Post by FIREchief »

OP: can you still access old VG statements that show your basis at the time of original purchase as well as time of conversion(s)? If so, I would download those and keep them in a very safe place. As other have suggested, the IRS forms allow you to report "corrected" numbers, but in case of an audit, a good trail of statements may be your best defense. I had a similar (although much less severe) problem with Vanguard, and found that the old statements provide a strong trail. As you experienced, their on-line cost basis system can be a bit problematic. Good luck.
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Doc
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Re: Vanguard Brokerage cost basis problems

Post by Doc »

alvinsch wrote: Well that is the question regarding what will the IRS do with non matching reported basis. If I had any confidence that Vanguard was going to actually fix this at some point, I would do as you say because eventually I would get a corrected 1099B. However, after having 7 months to fix a small problem and failing, I really doubt they intend to ever do anything about it.
Don't give up so fast. Just in the last few months I received a corrected 1099 div from VBS for tax year 2014.

That being said VBS cost basis accounting at least for wash sales is not in keeping with other brokers that I am familiar with or with IRS rules themselves as far as I can tell. The VBS reasoning is that their legal people say that the IRS does not allow what the other brokers are doing. When interest rates go up and more and more people are going to be selling bond funds at a loss maybe things will change.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
small_index
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Re: Vanguard Brokerage cost basis problems

Post by small_index »

I'd suggest filing your tax return and attach the documentation that proves you were correct and Vanguard has it wrong. Not sure if you can attach this electronically, but you want this documentation in your IRS file. Even if the IRS flags your return, an auditor will take a look and review the documentation you provided.

Think of this like a court case: both sides provide different versions of the same transaction. One side provides receipts. Since you're providing documentation, it won't be very productive for an IRS auditor to look deeper. If anything, I'd expect someone higher up at the IRS to wonder why Vanguard is generating so many disputed 1099-B.
missingdonut
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Re: Vanguard Brokerage cost basis problems

Post by missingdonut »

Report it on your 8949 with a basis adjustment as described earlier in this thread. In fact, the reporting is meant to prevent you from being audited, provided that the form is filled in correctly.

If you happened to be unlucky enough to be picked for audit, it would very likely be an audit by mail (called a correspondence audit). That's why you keep your documentation. A letter or two enclosing the documentation to the IRS should close it out.
Grasshopper
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Re: Vanguard Brokerage cost basis problems

Post by Grasshopper »

I had a CB problem, with an in kind transfer, with each blaming the other I used TurboTax which had me mail a form 8453 to the IRS even though I filed electronically. I sent copies of emails blaming the other, and statements, and a spreadsheet of my sales. Both companies knew that the the 1099's were wrong but wouldn't change them, so I am hoping the IRS will go after them. Me I am good to go so far.
johnanglemen
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Re: Vanguard Brokerage cost basis problems

Post by johnanglemen »

alvinsch wrote:I've been fighting Vanguard Brokerage for 7 months now trying to get them to fix their cost basis and tax reporting software but to no avail and I don't know what else I can do. They admit they have a software bug but after 7 months they've been unable / unwilling to fix it (continuously lying over the 7 months that they were working on it).

...

I reported this problem to them in early February and followed up roughly every two weeks since then but apparently have only been repeatedly lied to without a fix in sight. In July, I finally was contacted by the manager of my flagship representative who admitted that this didn't affect many people so it had a lower priority (and by inference that all the previous assurances that it was being worked on were lies).
Just chiming in to say that I've had exactly the same experience with Vanguard. Exactly. But it has transpired over the course of years, not months.
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