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A Recent Tax Court Update | Tax Tip of the Week | No. 162 September 5, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , trackback

No Records – No Basis!

In yet another of a long series of court cases, the Tax Court upheld that if a taxpayer cannot prove their cost basis in a securities transaction, then the cost basis is zero.

In the most recent case a Mr. Bilyeu admitted he sold over $20,000 in securities but tried to maintain that he should only pay taxes on the differences between the sales price and his initial costs.  In court, however, the taxpayer relied solely on his own testimony with respect to the basis.  He presented no documentation to support his basis–not even any hand-written notes that showed the date and price paid.

The Court said: “We are not required to, and we shall not, rely on a petitioner’s testimony to establish the basis that he had in each of the securities disposed of……” (see Bilyeu, T.C. Memo 2012-161, June 11, 2012).

In all probability, the net sales proceeds should have been taxed at much more favorable long-term capital gains rates. In the absence of proof, however, the entire proceeds were taxed as short-term gains (or ordinary income rates).

As we have stated many times in these Tax Tips, substantiation is the key to winning against the IRS.

It should also be noted that Mr. Bilyeu represented himself in Court—never a good idea!

As always, give us a call with any questions you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

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…until next week.


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