A Lesson in Record-Keeping [View all]

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My mother got a tax bill for $3,700 from the IRS a couple weeks ago. Seems she failed to report the sales of some mutual-fund shares in 2018, and her tax preparer didn't catch it on the 1099 form she got. She and my father apparently bought shares in 1995, and have been re-investing monthly dividends since then. Since she didn't report the sale, the IRS is taxing her on the full proceeds of the sale, approx. $18,000, plus interest.

To challenge this, I have to a) find all of the statements since 1995, then b) figure out what shares she sold, based on the purchase prices of the re-investments; and c) compile it all for the IRS to prove the cost basis of the sales. Problem I am running into is that she has lost many of the statements that I need that will prove the cost basis. And that may cost her a WHOLE BUNCH of $$ in the end.

So the lesson from this that I want to pass on is this: If you purchase an investment, be it a mutual fund, stock, real estate (eg, your home) you NEED to KEEP RECORDS of what you pay for it, for AS LONG AS YOU OWN IT, plus at least seven years after you dispose of it! Store them in a secure place where you can locate them if the IRS ever challenges you on them. This includes statements showing original purchases and any dividends or distributions re-invested. And if possible, record these in spreadsheets or databases that can be readily sorted and analyzed however you need them. It's a bit of trouble, but could save you beaucoup bucks in the long run.

Peace and prosperity to you all!