How to determine the cost basis for stocks with no records?

[worthit]

BHs:

I am in possession of some stocks for which I don't have the cost basis or the transaction history. I purchased these around early 2000 (around 2001 or 2002).

I don't recall when I purchased or what I price paid. That is the problem here. No records whatsoever.

I would like to sell them now. How do I ascertain their cost basis?

I am just trying to do some TLH before the end of the year.

TIA.

[arcticpineapplecorp.]

did you switch brokers so they can't tell you?

do you have paper stock certificates? would they have any date on them?

can you ask the selling broker to research it for you?

what's the difference between historical high and low prices in the dates you think you purchased it (between 2000-2002)?

[123]

If you have no records you can always use a cost basis of zero and the IRS will likely accept it.

Generally brokers were required to maintain records of stocks purchased 1/1/2011 or later (covered shares). All ETFs were covered by 1/1/2012.

[worthit]

did you switch brokers so they can't tell you?

do you have paper stock certificates? would they have any date on them?

can you ask the selling broker to research it for you?

what's the difference between historical high and low prices in the dates you think you purchased it (between 2000-2002)?

Thanks. Unfortunately, I don't have paper certificates and I may have transferred them over from another institution (that is my guess). I don't even recall which broker I used. This was a time in my life when I didn't have any time to pay attention and was financially naive and didn't have a clue.

The stocks are well known names and that is the irony. Microsoft, Intel, Qualcomm, GE, Oracle and Cisco. But I failed to maintain records.

If you have no records you can always use a cost basis of zero and the IRS will likely accept it.

Thanks, but this is going to sting from a tax perspective. I was advised a DAF by the current custodian which I need to look into.

[rkhusky]

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

[Opinika]

I'm in the same boat and have several small lots for which I can't find any cost information. Some were inherited pursuant to the distribution of a trust, others were spinoffs of other holdings for which I lack cost basis.

Some of these parcels have acquisition dates going back forty years or more. I realize that the IRS would be more than happy to let me use a cost basis of $0 and let me "pay my fair share." However, I'm a cheap SOB and don't care to pay a nickel in tax more than necessary.

I have three plans to deal with these missing cost basis lots:

1.) My 25 year old daughter recently graduated from University and has a very small income. She could sell some shares that I would gift her and still not have any capital gains tax liability. She could probably do this for two tax years. I can give her siblings cash gifts to keep things fair and equal.

2.) We could gift shares to the charities or schools we support. We would receive the full valuation of our gifted shares and the charity would sell the appreciated shares.

3.) Finally, we can leave it all for our heirs to deal with, they get the date of death step up and the problem is solved.

[averagelonghorn]

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

[rob]

If you have the dates, why not just lookup the split adjusted price on that day? I don't know how far back the usual yahoo/google etc. go but it must be available. I would think that is defendable in an audit.

[worthit]

Thank you all.

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

This is what I might attempt to do. I dont have the exact dates but a good guess of the time frame. I am going to look the prices up and see if it would make a difference. As another poster mentioned, I am not going to pay a penny more than I have to Uncle SAM.

[erp]

Thank you all.

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

This is what I might attempt to do. I dont have the exact dates but a good guess of the time frame. I am going to look the prices up and see if it would make a difference. As another poster mentioned, I am not going to pay a penny more than I have to Uncle SAM.

I don't see how this is useful if you are asked to show your work, ie something that at least proves the timeframe in which you purchased the shares.

otoh isn't MSFT up something like 10-15x since 2001? So a basis of $0 and 10% doesn't seem like a huge difference. imo the best suggestion so far was to unload the stocks somehow in the 0% bracket or by donating.

[alex_686]

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

Average price, not lowest. The IRS will give some latitude in these cases as long as you make a good faith effort.

[bluebolt]

I had some shares like this. I donated them to charity and now don't have to worry about it.

[hookemhorns]

The low point for the stocks you mentioned in the aftermath of the dotcom bust might as well be near zero cost basis compared to where they are now.

Worth doing some more research. I would start by asking the brokerage you have them at now where you transferred the shares in from.

[stan1]

How could you possibly tax loss harvest MSFT purchased in 2000-2002?

You have to adjust for splits, its about 10X what it was in 2000.

Donating the MSFT to a DAF is not a bad idea, if you'd otherwise make charitable contributions.

Even QCOM is now higher than its .com peak, just took 20 years.
Alas CSCO still below .com peak.

[toddthebod]

Cisco

You might be able to tax loss harvest!

[rkhusky]

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

Average price, not lowest. The IRS will give some latitude in these cases as long as you make a good faith effort.

Seems ripe for gaming. If you bought below average, claim ignorance, and use the average. Especially, multi-year periods.

[nassau34]

Has anyone actually gone through the process of making a good faith estimate of the cost basis and had it questioned by the IRS, or had it pass IRS scrutiny without any follow-up questions or audit? This is not an uncommon situation, and someone should have valuable insight to share.

[Impatience]

As alluded to above, you could use the lowest price in the time frame that you think it might have been purchased.

This is what I would do (and have done with very small amounts of gifted shares even older than that) if you really can't lock in a date of acquisition.

Average price, not lowest. The IRS will give some latitude in these cases as long as you make a good faith effort.

Don’t see how this is a good faith effort unless you have solid evidence of the date the shares were acquired. Knowing a “general timeframe” could be the same as knowing nothing if it’s based on hearsay and not evidence. Even picking the lowest price in a time period is not good faith in those circumstances

[Brianmcg321]

Has anyone actually gone through the process of making a good faith estimate of the cost basis and had it questioned by the IRS, or had it pass IRS scrutiny without any follow-up questions or audit? This is not an uncommon situation, and someone should have valuable insight to share.

I did this on my taxes in 2022. No questions were asked. I guestimated the month and year of purchase and used an average price during that month.

[bberris]

Just do your best to estimate a price. "Good faith" means you have no intention to cheat. I disagree with those saying "use zero cost basis" or find the lowest price you can. You don't have to punish yourself. If IRS disagrees with your estimate, they will send a letter and you can pay (or argue. I would just pay it.) Having incomplete records is not a crime, and estimating a price is not fraud. Unless this is hundreds of thousands of $, IRS has bigger fish to fry.

I would try to guess when I bought the stock and use a median price for the year.

[TomatoTomahto]

Has anyone actually gone through the process of making a good faith estimate of the cost basis and had it questioned by the IRS, or had it pass IRS scrutiny without any follow-up questions or audit? This is not an uncommon situation, and someone should have valuable insight to share.

I did this on my taxes in 2022. No questions were asked. I guestimated the month and year of purchase and used an average price during that month.

I did it some years ago, except with accurate basis information (thank you Quicken). The IRS didn’t know that my information was accurate and didn’t ask, so (except for bad luck) a good faith effort would probably have sufficed.

[worthit]

Just do your best to estimate a price. "Good faith" means you have no intention to cheat. I disagree with those saying "use zero cost basis" or find the lowest price you can. You don't have to punish yourself. If IRS disagrees with your estimate, they will send a letter and you can pay (or argue. I would just pay it.) Having incomplete records is not a crime, and estimating a price is not fraud. Unless this is hundreds of thousands of $, IRS has bigger fish to fry.

I would try to guess when I bought the stock and use a median price for the year.

The total value of all these stocks combined currently is around $30K. Not a lot. The more I think about it, I am just going to make a GFE and if the IRS comes back asking for $$$, I may just end up paying.

Thanks all.

[ColoradoRick]

If it were me (which it isn't) I would actually do what one blogger said:

1). narrow down the date range involved as best as possible
2). go to Yahoo Finance under the stock, look at historical data pricing high and low for the period
3). take the average

The IRS is free to disagree but I don't think any reasonable agent would argue this was bad intent.

[ColoradoRick]

If it were me (which it isn't) I would actually do what one blogger said:

1). narrow down the date range involved as best as possible
2). go to Yahoo Finance under the stock, look at historical data pricing high and low for the period
3). take the average

The IRS is free to disagree but I don't think any reasonable agent would argue this was bad intent.

[neurosphere]

Has anyone actually gone through the process of making a good faith estimate of the cost basis and had it questioned by the IRS, or had it pass IRS scrutiny without any follow-up questions or audit? This is not an uncommon situation, and someone should have valuable insight to share.

I've revived an old-ish thread, but it was the first search result which closely aligned to my question, which is the same as the question quoted above.

I'm wondering if any who reads this thread meets the following criteria (or can provide knowledge of another):
1) Didn't know the basis for shares sold and used their own reasonable method to come up with one, **AND**
2) Was asked by the IRS to provide justification

Context: My father has uncovered shares which he will likely need to sell during his lifetime. There are no records (shares passed through more than 3 different advisors/brokerages since purchased pre-online era). I'm researching whether there is any anecdotal or even "published" guidance to help with a strategy (court cases, private letter rulings). It's a situation where there could be small gains or even losses, i.e. a cost basis of zero while attractive leads to a lot of extra tax. This is not a case of a $1 stock from the distant past which is now worth $1000.

[JazzTime]

No, I have no direct experience. However, I suspect that so long as you report the sale and proceeds and make a good faith effort to report the acquisition date and cost basis, it is unlikely the IRS will question it and, if they do, simply show them what you did. If they disagree, so be it.

That said, the risk of audit will obviously depend on the amounts reported. If you sell $100K of stock that was acquired 25 years ago for about $15K, that's realistic and believable. If you sell $1MM of stock acquired 50 years ago and claim a basis of $500K, that is probably not believable. Plus, such a large amount might get you into audit territory. But that's my two cents guesstimate. Since cost basis prior to 2011 is not reported, I'm not sure how the IRS is set up to handle sales of long time holdings or how closely they scrutinize such sales.

[JazzTime]

Context: My father has uncovered shares which he will likely need to sell during his lifetime. There are no records (shares passed through more than 3 different advisors/brokerages since purchased pre-online era).

The other option is to have your father hold these shares until death, then they will receive step-up basis. Of course, he should transfer them to a brokerage house to hold and name a beneficiary. That would smooth the transfer on death.

[neurosphere]

Context: My father has uncovered shares which he will likely need to sell during his lifetime. There are no records (shares passed through more than 3 different advisors/brokerages since purchased pre-online era).

The other option is to have your father hold these shares until death, then they will receive step-up basis.

Yes. Or he could donate to charity. But in this case, he will almost certainly need to sell these shares to pay his bills during his lifetime. He can't afford to give anything to heirs or charity. So I'm curious to find specific situations where the IRS questioned or provided some guidance regarding situations like this.

[JazzTime]

Yes. Or he could donate to charity. But in this case, he will almost certainly need to sell these shares to pay his bills during his lifetime. He can't afford to give anything to heirs or charity. So I'm curious to find specific situations where the IRS questioned or provided some guidance regarding situations like this.

I can't point to any guidance, but some additional details might be helpful. What is the approximate current value of the shares? Does he have actual certificates or are they held by a brokerage firm? Any idea when they were purchased? If he has certificates, then one must take account of splits that occurred while he held those shares in order to determine the present value. If the stocks paid dividends, then one could check old tax returns, if available, to see how far back dividends were paid. I realize that may be impossible.

If it were me, I would probably just guesstimate a date of acquisition and cost basis (within reason) and put that on the tax form. The IRS is unlikely to question it because they have no data to compare for acquisitions pre-2011. If they do question it, you have a conversation with them. Worse case scenario is they say basis is zero. Again, a lot depends on the amount of proceeds. A $10K sale is much less likely to get scrutiny than a $500K sale.

[neurosphere]

What is the approximate current value of the shares?

One example is $50,000 worth of Ford motor. Which he may have bought for $1 in 2009 or $35 in 1999. Now worth $9/share.

I'm not "stressing" so much about this. I really will just do something reasonable and move on. And if questioned (exceedingly unlikely) I'll just explain what I did and whatever happens happens. But I'd still like to learn more about this issue. I suppose it's a lot like 8606 forms. There is no evidence they have ever looked/care/challenged anyone when they claim they have basis in an IRA.

[Raycpact]

In my over 40 years of doing taxes I don't recall a single time the irs wanted documentation of purchase price of a stock. I have made good effort to help price shares for clients. In my experience, the situations are usually recent or very distant. The recent ones usually require some more persistence. The distant one usually becomes immaterial. For example, a couple received shares of Coke as a wedding gift in 1960 and sold them in 2023.

Often, the range of potential prices can make no difference (0 tax bracket] or very minor ultimate affect on tax.

[Asyouwish]

You would need a fellow boglehead who reads and frequents this forum and who also happened to be audited for cost basis. Or a tax pro who has had clients audited for cost basis. Audits in general are low, compared to the hundreds of millions of returns filed every year.

Do your best guess and move on. The IRS right now has bigger problems. And soon to have less employees. Things like this will either become completely automated, or non factors..

[rkhusky]

There’s also the risk of random audit, so just do your best and let the chips fall where they may.

[singledigit12b]

I am facing a similar situation this year. In an effort to simplify my investments as a part of my estate planning I sold shares of stock I had in a DRIP plan I had established in the late 90’s. I have 144 transactions that have no cost basis recorded. Fortunately the company holding the stocks were able to supply the dates of all of the transactions so I am able to make a very good estimate of the cost basis. I used the lowest price the day of purchase. In hindsight I should have transferred the shares to my brokerage account and left them for my heirs to get the stepped up basis. Would have saved me the couple of hours I spent looking up all of those transactions.

[JazzTime]

I am facing a similar situation this year. In an effort to simplify my investments as a part of my estate planning I sold shares of stock I had in a DRIP plan I had established in the late 90’s. I have 144 transactions that have no cost basis recorded. Fortunately the company holding the stocks were able to supply the dates of all of the transactions so I am able to make a very good estimate of the cost basis. I used the lowest price the day of purchase. In hindsight I should have transferred the shares to my brokerage account and left them for my heirs to get the stepped up basis. Would have saved me the couple of hours I spent looking up all of those transactions.

My MIL had some random shares that kept reinvesting via DRIP. (This was before brokerage firms.) What a royal pain when I took over her finances. Luckily, she kept a notebook with some info re the reinvestments. Otherwise I would have been totally baffled. It was bad enough trying to sell those shares via multiple letters and documentation to the firm.

[quantAndHold]

What is the approximate current value of the shares?

One example is $50,000 worth of Ford motor. Which he may have bought for $1 in 2009 or $35 in 1999. Now worth $9/share.

I'm not "stressing" so much about this. I really will just do something reasonable and move on. And if questioned (exceedingly unlikely) I'll just explain what I did and whatever happens happens. But I'd still like to learn more about this issue. I suppose it's a lot like 8606 forms. There is no evidence they have ever looked/care/challenged anyone when they claim they have basis in an IRA.

For something like that, I would still do exactly what was recommended earlier in the thread, find the median price for the period, and use that. He would have to be incredibly unlucky to get audited in the first place, especially with what’s going on with the feds right now, and he is legitimately doing the best he can with the info he has.

[Raycpact]

Regarding the advice to use what is reasonable. Keep in mind that the burden of proof is on the taxpayer. The IRS is not under any responsibility or even authority to use judgement on allowing the cost. The reasonable test should be the taxpayer calculating what the tax, penalty and interest is if the IRS adjusts to zero. As dirty Harry said, do you feel lucky?

This could argue for taking the lowest amount that you can justify rather than rolling the dice if the alternative amounts would result in too high of a tax cost.

Also, keep in mind if you are using a tax professional, they cannot advise based on your chances of audit.

There are ways to reduce or eliminate possible penalties but that is something that should be discussed with a professional.

[TBillT]

I recall when I rolled over company 401k stock and had stock cost basis but no date, and I forget why, but that was important element of NUA, and it stopped me from DIY of the forms. Used the 401k brokers Voya who knew how to finesse NUA, they just put in 1999 or something like that.

[suemarkp]

To me, the basis should not have to be zero. No one buys stocks for zero. My mom is in this situation. She knows she received $10K as an inheritance and some relative suggested a mutual fund to her. So I know she went in with $10K and don't know if the dividends were ever reinvested. There is no documented proof, just her failing memory. I'll probably call it $10K if I have to sell it. We're trying to avoid selling it so it just resets on her death and the problem goes away.

The IRS has nothing documented to challenge your number. "Knowing" something helps, either total purchase amount, the number of shares and the purchase date. Even guessing a starting date like your birth date as a worse case or maybe age 18 or 21. I would avoid a date if it appears to be cherry picked even if that date is legit but undocumented (e.g. a week or month when the price went real high and came back down like an recent NVidia peak).

[bberris]

Regarding the advice to use what is reasonable. Keep in mind that the burden of proof is on the taxpayer. The IRS is not under any responsibility or even authority to use judgement on allowing the cost. The reasonable test should be the taxpayer calculating what the tax, penalty and interest is if the IRS adjusts to zero. As dirty Harry said, do you feel lucky?

This could argue for taking the lowest amount that you can justify rather than rolling the dice if the alternative amounts would result in too high of a tax cost.

Also, keep in mind if you are using a tax professional, they cannot advise based on your chances of audit.

There are ways to reduce or eliminate possible penalties but that is something that should be discussed with a professional.

Contrary to popular belief, the IRS is not out to get middle class investors who overestimate their basis by a few bucks or make some honest mistake. The penalty that would be charged by IRS, in the unlikely event that they challenge your basis, would just be interest on what they think you should have paid. I find it hard to believe that the IRS is going to chase down a $30,000 trade. Anyway, I hope the OP lets us know if this happens.

[typical.investor]

There are no records (shares passed through more than 3 different advisors/brokerages since purchased pre-online era).

What records do you have?

Were dividends reinvested? If so, it's often possible to deduce a purchase date based on number of shares currently held using a cost basis tool such as offered by Schwab (need to be logged in).

I've found it useful to consult such a tool in cases where corporate actions may have occurred too (splits etc). For example, you mention Ford Motor Company for $35 in 1999. The tool tells me that shares bought then would also receive shares of VC in a spin-off. Those bought in 2009 did not. So if he also has VC, it will tell you a lot I think.

And actually, VC went through a number of symbol changes 2009-2011 until it went back to VC so if any of the statement you have show any of those, that might help date the purchase as well.

I would be happy to run a few tickers if you don't have access to the tool.

[rob]

I'm sure the IRS would be fine with zero. Otherwise use what you think you can defend.

[DTalos]

In my over 40 years of doing taxes I don't recall a single time the irs wanted documentation of purchase price of a stock. I have made good effort to help price shares for clients. In my experience, the situations are usually recent or very distant. The recent ones usually require some more persistence. The distant one usually becomes immaterial. For example, a couple received shares of Coke as a wedding gift in 1960 and sold them in 2023.

Often, the range of potential prices can make no difference (0 tax bracket] or very minor ultimate affect on tax.

Regarding the advice to use what is reasonable. Keep in mind that the burden of proof is on the taxpayer. The IRS is not under any responsibility or even authority to use judgement on allowing the cost. The reasonable test should be the taxpayer calculating what the tax, penalty and interest is if the IRS adjusts to zero. As dirty Harry said, do you feel lucky?

This could argue for taking the lowest amount that you can justify rather than rolling the dice if the alternative amounts would result in too high of a tax cost.

Also, keep in mind if you are using a tax professional, they cannot advise based on your chances of audit.

There are ways to reduce or eliminate possible penalties but that is something that should be discussed with a professional.

In your professional experience, is there any IRS publication or accountancy industry journal that addresses what the IRS's definition is of reasonable and good faith when estimating the cost basis of sold stocks that have an unknown cost basis or acquisition dates? If a brokerage statement lists the cost basis and acquisition date of a sold lot of a specific stock, would it be permissible to use that cost basis for other sold stock share lots of the same stock that have an unknown cost basis or acquisition date? Would that one known cost basis and acquisition date be an intelligent and persuasive justification for the other sold stock share lots that have an unknown cost basis and acquisition date? In this example, I am referring to sold stock of $175,000 in value that was acquired approximately 35 years ago.

[Raycpact]

In my over 40 years of doing taxes I don't recall a single time the irs wanted documentation of purchase price of a stock. I have made good effort to help price shares for clients. In my experience, the situations are usually recent or very distant. The recent ones usually require some more persistence. The distant one usually becomes immaterial. For example, a couple received shares of Coke as a wedding gift in 1960 and sold them in 2023.

Often, the range of potential prices can make no difference (0 tax bracket] or very minor ultimate affect on tax.

Regarding the advice to use what is reasonable. Keep in mind that the burden of proof is on the taxpayer. The IRS is not under any responsibility or even authority to use judgement on allowing the cost. The reasonable test should be the taxpayer calculating what the tax, penalty and interest is if the IRS adjusts to zero. As dirty Harry said, do you feel lucky?

This could argue for taking the lowest amount that you can justify rather than rolling the dice if the alternative amounts would result in too high of a tax cost.

Also, keep in mind if you are using a tax professional, they cannot advise based on your chances of audit.

There are ways to reduce or eliminate possible penalties but that is something that should be discussed with a professional.

In your professional experience, is there any IRS publication or accountancy industry journal that addresses what the IRS's definition is of reasonable and good faith when estimating the cost basis of sold stocks that have an unknown cost basis or acquisition dates? If a brokerage statement lists the cost basis and acquisition date of a sold lot of a specific stock, would it be permissible to use that cost basis for other sold stock share lots of the same stock that have an unknown cost basis or acquisition date? Would that one known cost basis and acquisition date be an intelligent and persuasive justification for the other sold stock share lots that have an unknown cost basis and acquisition date? In this example, I am referring to sold stock of $175,000 in value that was acquired approximately 35 years ago.

I would put zero reliance on using a stock price at a different acquisition date. The potential price difference in one day can be material. You seem to know the date within a few years. My starting point would be to nail down the date range and then look at the lowest cost in that range, checking for splits and other changes. Netbasis.com is one source.

The taxpayer has the "burden of proof" to support a deduction. The IRS is not under any obligation to be reasonable. My understanding is both the IRS and the taxpayer looks to what a judge would decide based on the evidence presented by both parties. This means you would be willing to take the issue to court or to accept the penalties and interest if adjusted.

If the taxpayer has no evidence then that makes the judges job easy but bad for taxpayer. For example, if the evidence is that the stock never sold for less than $10 then that gives the judge something to use. If the taxpayer can prove the purchase had to be within 1998 and 1991 and used the lowest price that would be something to use. If the taxpayer used a higher amount than $10, it then becomes a question for both sides how much risk to take.

Regarding the issue of estimates, you can Google "Cohan rule" which gives an indication of the use of estimates in another area of tax deductions.

A secondary consideration is the consequences of the IRS disagreement and tax adjustment. There can be significant penalties on tax understatement. You could check form 8275 for disclosure to avoid penalties. If you take a very aggressive position without documentation, I would consult a CPA or attorney before filing.

[Chicago60]

If you maintained copies of your tax returns, you would have a wealth of information contained in the 1099's that would provide some assistance in making accurate calculations.

[MDfan]

We had this same issue about 10 years ago and just estimated what we thought the basis would be based on the stock price around the times we received the shares. I think we received multiple gifts of stock at different times so we just averaged the cost. I just kept a record (memo) of how I determined the basis. Definitely wasn't going to do zero because it was a pretty substantial amount.

[toddthebod]

We had this same issue about 10 years ago and just estimated what we thought the basis would be based on the stock price around the times we received the shares. I think we received multiple gifts of stock at different times so we just averaged the cost. I just kept a record (memo) of how I determined the basis. Definitely wasn't going to do zero because it was a pretty substantial amount.

Well that doesn't sound right at all. Gifted stock does not get a step up in basis. The stock price when you received the shares is meaningless (for you, not for the gifter).

[MDfan]

We had this same issue about 10 years ago and just estimated what we thought the basis would be based on the stock price around the times we received the shares. I think we received multiple gifts of stock at different times so we just averaged the cost. I just kept a record (memo) of how I determined the basis. Definitely wasn't going to do zero because it was a pretty substantial amount.

Well that doesn't sound right at all. Gifted stock does not get a step up in basis. The stock price when you received the shares is meaningless (for you, not for the gifter).

I recall reading something about determining the fair market value of the shares when received if you could not determine the original basis. Pretty sure we received advice from a tax preparer at the time. Like I said this was more than 10 years ago.

[Raycpact]

Well that doesn't sound right at all. Gifted stock does not get a step up in basis. The stock price when you received the shares is meaningless (for you, not for the gifter).

I recall reading something about determining the fair market value of the shares when received if you could not determine the original basis. Pretty sure we received advice from a tax preparer at the time. Like I said this was more than 10 years ago.

I agree with Todthebod.

[DTalos]

In your professional experience, is there any IRS publication or accountancy industry journal that addresses what the IRS's definition is of reasonable and good faith when estimating the cost basis of sold stocks that have an unknown cost basis or acquisition dates? If a brokerage statement lists the cost basis and acquisition date of a sold lot of a specific stock, would it be permissible to use that cost basis for other sold stock share lots of the same stock that have an unknown cost basis or acquisition date? Would that one known cost basis and acquisition date be an intelligent and persuasive justification for the other sold stock share lots that have an unknown cost basis and acquisition date? In this example, I am referring to sold stock of $175,000 in value that was acquired approximately 35 years ago.

I would put zero reliance on using a stock price at a different acquisition date. The potential price difference in one day can be material. You seem to know the date within a few years. My starting point would be to nail down the date range and then look at the lowest cost in that range, checking for splits and other changes. Netbasis.com is one source.

The taxpayer has the "burden of proof" to support a deduction. The IRS is not under any obligation to be reasonable. My understanding is both the IRS and the taxpayer looks to what a judge would decide based on the evidence presented by both parties. This means you would be willing to take the issue to court or to accept the penalties and interest if adjusted.

If the taxpayer has no evidence then that makes the judges job easy but bad for taxpayer. For example, if the evidence is that the stock never sold for less than $10 then that gives the judge something to use. If the taxpayer can prove the purchase had to be within 1998 and 1991 and used the lowest price that would be something to use. If the taxpayer used a higher amount than $10, it then becomes a question for both sides how much risk to take.

Regarding the issue of estimates, you can Google "Cohan rule" which gives an indication of the use of estimates in another area of tax deductions.

A secondary consideration is the consequences of the IRS disagreement and tax adjustment. There can be significant penalties on tax understatement. You could check form 8275 for disclosure to avoid penalties. If you take a very aggressive position without documentation, I would consult a CPA or attorney before filing.

Thank you for your reply. I do not have my tax returns going back to the 1990s and I could not find any cost basis or acquisition date records for the unknown cost basis and acquisition date stock lots that I sold. In my specific situation, the stock lots that I sold holdings of were originally purchased under the stock symbols and names of two different companies. Over time, these two companies transitioned (via divestment, restructuring, buyouts, etc.) into the present company that I sold stock lot holdings of. What is interesting is that both my current and previous brokerage list/listed the stock lot that I sold with the known cost basis and acquisition date under the name of the current company, even though the current company did not exist in the early 1990s. I presume that both my current and previous brokerage had a formula that took into consideration my holdings of the two former companies and adjusted for divestment, buyouts, restructuring etc., in determining the cost basis of the stock lot that was sold under what is now the current company. I understand that without any documented proof from a brokerage, it is difficult to prove cost basis or acquisition date. However, using the example of a court case, wouldn't most judges presume that most investors do not have purchase records from 30+ years ago, and that the overwhelming majority of investors do not purchase stocks for $0? Absent any other documented proof, why wouldn't most judges or the IRS accept the cost basis of the one documented lot as reasonable estimate of cost basis and acquisition date for the unknown cost basis and acquisition date stock lots?