How to update and research missing cost basis

How to update and research missing cost basis

The presence of missing cost basis for shares sold presents a challenge for clients when they perform tax reporting. You can avoid this issue by making some preparations before Schwab generates the Form 1099 Composite.

The most common reasons cost basis may be missing for a position are:

  • Shares were transferred to Schwab, but either the delivering firm did not provide cost basis reports, or the delivering firm indicated the cost basis was unknown to them.
  • The current position is a result of a corporate action from a position that was missing cost basis information.
  • Shares were purchased at Schwab prior to 1993.
  • The position is an alternative investment, and therefore its cost basis is not tracked by Schwab.

To update missing cost basis for sale transactions, you will need the following:

  • List of accounts and positions missing cost basis
  • Cost basis and acquisition dates for accounts and positions missing cost information
  • Cost Basis Edit Form for Noncovered Shares form
  • Adobe® Reader® or Adobe Acrobat® 7.0 or higher (download the latest version on the Adobe website)

The Schwab Data Delivery® files can be utilized to identify accounts with missing cost basis on open and closed positions. If you have questions about working with Schwab Data Delivery, call Advisor Platform Support at 800-647-5465.

Positions with missing cost basis can be viewed on Schwab Advisor Center® by following the steps below.

  1. Access individual account
  2. Go to Cost Basis tab
  3. Click on Unrealized Gain/(Loss) tab to view positions currently in account or click Realized Gain/(Loss) tab to view sold positions
  4. Identify positions displaying as Missing in Cost Basis column
  5. Expand tax lots by clicking + under the +All column icon left of symbol

Example of missing cost for shares currently held
Example of missing cost basis for shares that have been sold

If missing cost basis is displayed for a security, your client may be able to obtain it by:

  • Reviewing original trade confirm(s)
  • Consulting previous account statements
  • Referring to Schwab Form 1099 Composite (prior to tax year 2011)
  • Stepping up cost basis if they inherited shares (If shares were inherited, Step Up Cost Basis to Date of Death Request Form should be completed)

If the client is unable to obtain the original purchase information, the IRS may allow the use of an estimate, such as the average for the day purchased or approximate time frame of the purchase.
For mutual funds, the client can average the cost basis of the lots if they were acquired at different times. The client should keep records to substantiate their estimate. When using an estimate, Schwab strongly encourages the client to consult with a qualified tax advisor.

To update missing cost basis, complete the Cost Basis Edit Form for Noncovered Shares. You will need to provide the following information for Schwab to complete your request. If the request involves multiple tax lots, provide a Microsoft® Excel spreadsheet for faster processing.

  • Symbol, CUSIP, or position description
  • Type of edit requested
  • Lot quantity*
  • Total cost basis
  • Original acquisition date
  • Settlement date (for fixed income securities only)

* The share quantity should match the current share quantity in the account.
† The total cost basis provided should be adjusted to include commissions and fees along with adjustments for option premiums, corporate actions, wash sales, and return of capital or principal payments received. The original cost basis should be provided for fixed income securities with accrued interest excluded.
‡ In most cases, the original acquisition date is not the same as the date the shares are transferred into the account which shows by default when cost basis is missing.
Submit the request to AS Client Reporting via Schwab Advisor Center service request and select:

  • Topic: Cost Basis and Statement Support
  • Subtopic: Cost Basis Edit Request

Attach the form, Microsoft® Excel spreadsheet, and any other documentation to the request.

If you have questions about cost basis reporting, statement preferences, and tax reporting, contact your service team or call Advisor Services Cost Basis Service Tooltip at 877-762-6446.

Go to the Forms library on Schwab Advisor Center and select the forms below.

Form: Cost Basis Edit Form for Noncovered Shares
Form: Step Up Cost Basis to Date of Death Request Form
Resource: Example of missing cost for shares currently held
Resource: Example of missing cost basis for shares that have been sold
Resource: Sample Form 1099-B with transactions missing cost basis

How is missing cost basis reported on the Form 1099-B?
Transactions with missing cost basis are categorized into two different sections Tooltip on the Form 1099-B. The acquisition date reflects the date the position was received at Schwab not the actual purchase date because it is not known to Schwab.

If the cost basis is missing, the following are not reported to the IRS:

  • Date acquired
  • Cost or other basis
  • Accrued market discount
  • Wash sale loss disallowed

Since the date acquired is not reported to the IRS if the cost basis is missing, it is immaterial which of the two missing cost basis sections the sale transaction is reflected in the Form 1099-B. The client has the opportunity to report the accurate holding period when they complete the Form 8949. If the client knows the transaction has a short-term holding period, they should report it in Part I with Box B checked. If the client knows it has a long-term holding period, it will be reported in Part II with Box E checked.

See a Sample Form 1099-B with transactions missing cost basis.

When do I need to submit the missing cost basis for it to display on the initial Form 1099 Composite run?
To ensure the missing cost basis will be updated in time for it to display on the initial Form 1099 Composite, the edit request should be provided to us by the third week of January. If the missing cost basis is submitted after the deadline, the update is made on a best efforts basis.

Will a new 1099-B form be produced automatically once the update has been made?
No. If the request is to update missing cost basis, the shares are deemed as non-covered. Schwab's system does not automatically generate a corrected tax form when non-covered data has been altered. When submitting the request, you will need to indicate a new tax form needs to be generated.

Why is missing cost basis still reflected on the realized gain/loss even after I provided cost basis?

The position may still reflect missing cost basis after it has been provided to Schwab due to:

  1. The position is a mutual fund and the account is set to average cost basis Tooltip . The cost basis will reflect as missing on non-covered shares even if a portion of the missing cost basis is provided. It will not display the cost basis for every tax lot until the cost basis for every shares has been updated. The shares missing cost basis could have been sold in prior years but it is still needed in order to calculate a cost basis.

    Example of missing cost for shares that have been sold
  2. Shares of the same position are currently held in the account at the time you provide the information for the missing sold shares. Since Schwab's system will replay the sale transaction(s) and apply the default accounting method on the account (unless tax lots were specified at the time of the trade), the tax lot updates you request on the form may not be applied.

    If shares missing cost basis have been sold, Schwab cannot permit the advisor to request for those specific tax lots to be updated with cost basis because we would be allowing specified lots to be assigned after settlement which could violate the IRS regulations regarding specified lot instructions.

If shares are missing cost basis but were inherited, do I use the Cost Basis Edit Form for Non-covered shares to make the request?
No. The Step Up Cost Basis to Date of Death Request Form should be completed. This is important for two reasons.

  1. When a request to step up cost basis is made on the appropriate form, Schwab will code the shares as long term regardless of when they were purchased. That is the appropriate way to report the holding period on inherited shares. If an edit form is submitted, shares that may be eligible to have a long-term holding period may reflect a short-term holding period in error.
     
  2. If shares eligible to be stepped up currently reflects cost basis and have been sold, the cost cannot be edited after settlement date (for non-covered shares) or at all (for covered shares) except in certain circumstances. One of those circumstances is if the cost basis is being adjusted for a step up to date of death request. If an edit form is submitted, some of the positions eligible to be stepped up may not be.

The cost basis on the position that have been sold is incorrect. How can I edit the cost basis?

If the position is non-covered, the cost basis can be updated by settlement of the sale transaction. If it is past settlement, the cost basis cannot be updated. However, the non-covered cost basis displayed on the Form 1099 Composite will not be reported to the IRS. The reason why Schwab will not allow the cost basis for non-covered cost basis to be updated after settlement is because it could violate the IRS regulations regarding specified lot instructions.

Introduction to the Account Summary Report and Year-end Realized Gain/Loss Report