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In 2011, I participated in a tender offer for Sunpower which had a fee of $25. My broker's tax form 1099B showed the proceeds from this offer but did not exclude this fee. My own calculations did include this fee, just as I handle brokerage fees for every other stock purchase + sale.

Who's right? If I'm right, is there a way I can note the discrepancy in my tax form? I'm nervous about reporting something different to the IRS than my broker did.

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It is perfectly legitimate to adjust your 1099-B income by broker's fees. Publication 17 (p 116) specifically instructs taxpayers to adjust their Schedule D reporting by broker's fees:

Form 1099-B transactions. If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B or substitute statement from the broker. Use the Form 1099-B or the substitute statement to complete Form 8949. If you sold a covered security in 2013, your broker should send you a Form 1099-B (or substitute statement) that shows your basis. This will help you complete Form 8949. Generally, a covered security is a security you acquired after 2010.

Report the gross proceeds shown in box 2a of Form 1099-B as the sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. However, if the broker advises you, in box 2a of Form 1099-B, that gross proceeds (sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either Part I or Part II of Form 8949, whichever applies.

Include in column (g) any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless you reported the net sales price in column (d). If you include an expense of sale in column (g), enter “E” in column (f).

You can rely on your own records and judgment, if you feel comfortable doing so. Brokers often make incomplete tax reporting. This may have been simpler from their perspective if the broker fees were variable, or integrated, or unknown for a number of clients party to a transaction. If a taxpayer has documentation of the expenses that justify an adjustment, then it's perfectly appropriate to include that in the calculations.

It is not necessary to report the discrepancy, and it may increase scrutiny to include a written addendum. The Schedule D, Form 8949, and Form 1099-B will probably together adequately explain the source of the deduction.

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Using a different cost basis than your broker's reporting is NOT a problem. You need to keep your own records to account for this difference.

Among the other many legitimate reasons to adjust your cost basis, the most popular is when you have two brokerage accounts and sell an asset in one then buy in another. This is called a Wash Sale and is not a taxable event for you. However from the perspective of each broker with their limited information you are making a transaction with tax implications and their reported 1099 will show as such.

Links:

https://www.firstinvestors.com/docs/pdf/news/tax-qa-2012.pdf

  • s/broken/broker's – Jason S Feb 27 '14 at 18:09

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