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Why Your Accountant Might Not Have Your Records

In a recent post about the new estate tax rules, one reader commented: “Well if this accountant was this ladies tax preparer early in her career she should darn well know where every bit of paper is regarding each share.”  After all, this reader said, his accountant has records going back “to the beginning of time” regarding his asset purchases.

I smiled when I read that, visualizing my 20-something self, having been 80+ year Mildred’s accountant since she was a young housewife. In fact, I never met Mildred. It was Ruth, her younger sister (who was 70-ish), who took over as Mildred’s guardian and hired me to catch up on several years of unfiled tax returns. However, it was early in my career, I became aware of the basis nightmare that many people face.

Let me give you 10 reasons why your accountant might not have your records:

1. It’s not unusual for a tax professional to start working with an elderly person for the first time after the person has been incapacitated. By that time, the client might be unable to participate in the tax preparation and planning process.

2. One spouse handled all the finances. The other spouse knew nothing about the details – and never found the records.

3. The family has moved many times. Records were misplaced or lost over the years.

4. There were floods, earthquakes or other plagues that destroyed the records.

5. All the records were in the hands of accountants, attorneys or other financial managers. The firm may have closed, or the principals may have died, but the records were not distributed to clients.

6. The brokerage merged, merged again, and merged yet again. Basis records were not transferred along with the list of shares owned at the time of each merger.

7. There was a divorce and the ex–spouse refused to turn over basis records. The client was too intimidated to insist – or didn’t know s/he needed the records.

8. The stocks split many times and some of the shares were sold over the years. No one bothered to keep the records when they prepared their own tax returns.

9. The assets were received as gifts. The basis information was never provided.  The recipient didn’t realize s/he needed the information until years later.

10. Excellent records were kept of the purchases and sales of the stocks. But no one bothered to track the value of the reinvested dividends, which had been taxed. Those should be added to basis, too, but this is often overlooked.

Incidentally, an interesting thing happened when Ruth and I started filing tax returns for Mildred. The IRS had just started the 1099 program in the early 1980s, which meant we started receiving 1099-INTs and 1099—DIVs from banks and brokerages. We found about $150,000 worth of accounts that Ruth didn’t know Mildred owned. That was a happy surprise.


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    • It’s the clients responsibility to obtain & maintain those records. The accountant may have had the 1099′s, but likely never received brokerage account detail (it’s sometimes like pulling teeth to get that info.), or didn’t retain it if it had no impact on the current year’s return. In any case, the accountant likely never had any documents that the client didn’t. Clients need to realize that our offices aren’t your garbage dump or storage facility for all the paperwork you don’t want to maintain.

    • You know what, I’m very much icnlneid to agree.

    • When I worked for the Torrance Trust Mill in their tax preparatin firm, I developed a spread sheet that tracks the running average cost of stocks. It allows for the splits, stock dividends and reinvested distributions and keeps a running average cost for sales. We were lucky in that the investment firm that managed the assets of the people we dealt with was right down the hall and we could look at their files.

About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.