Discussion:Exchange of Mutual Funds
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Discussion Forum Index --> Basic Tax Questions --> Exchange of Mutual Funds
Discussion Forum Index --> Tax Questions --> Exchange of Mutual Funds
| 20 February 2008 | |
| I have a client who's grandparents started a mutual fund for him 12 years ago. It was in their name and his. They paid all taxes until he turned 18. At 18 (in 2006) he transfered the fund into his name only.
This year he exchanged the shares in the original fund for different shares within the same family of funds. He received several 1099-Bs with the discripton "Exchange to ......". What I am reading is that this is a taxable exchange. Am I correct? If so, what basis do I use. Do we need to go back and figure the basis from the time it was purchased plus reinvested dividends?(This would be almost impossible to do.) Or can I use the value at the time it was received or changed into his name? | |
Southparkcpa (talk|edits) said: | 20 February 2008 |
| This is in fact a taxable event.
The question of basis is always a problem. If the funds are in the same family AND they are on that family's statement, the fund family can and should have given you the basis. If the funds are (Say Vanguard) but the funds are on a Merrill Lynch Statement, your client must provide you with basis. | |
| 25 February 2008 | |
| The exchange is in the same family of funds. When I asked for the basis they sent me the statements for every year showing original basis, dividends and cap gain. What I don't understand is that when he had it changed over into just his name it was as if they purchased the share at the present price. In other words, even thought the basis is say $27.00 per share the are showing the the value at the time of change at $33.00 per share. Therefore my client is thinking that he has little or no gain when he exchanges this into another account, but I think his basis is still $27.00. That is the actual cash in the stock. Am I right? | |
| 25 February 2008 | |
| treat as a sale - his cost basis = original investment(s) + reinvested amounts over the years - the mutual fund company's records are probably correct | |
| 26 February 2008 | |
| Mutual fund not correct. They frequently lose basis when transferring accounts. Correct basis is the cost + reinvestments. Sounds like that is the $27 amount. Just moving account on day when value of shares is $33 has no bearing on gain. | |
| 26 February 2008 | |
| I am still getting a argument from this client. He says that his broker says that there is little or no gain. That this was a gift when he transfer it into his name in 2006. It has been in the grandparents name as TTEE with a FBO before the client's name since 2001. I can't believe that the IRS would let $15,000 or more of appreicated value go untaxed. He is having his broker call me tomorrow. I still think I'm right, but I want to make sure that I'm not missing something. | |
| 27 February 2008 | |
| Gift basis = donor's (grandparent's) basis. Still have same answer. | |
| 6 March 2008 | |
| Patc, He received several 1099-Bs with the discripton "Exchange to ......". What I am reading is that this is a taxable exchange. Am I correct? You have been preparing taxes for 25 years? | |
| 6 March 2008 | |
| DZ - that type of response inhibits dopes like me from using this forum more than I do. | |
| 6 March 2008 | |
| I had a similar situation where so called investment advisor sold one mutual fund and purchased another … I think this advisor is churning the account.
The Tax Code bigots (those who say you can not use IRS Pubs) will probably jump all over me, however, see page 6 of Pub 564: “Exchange of shares in one mutual fund for shares in another mutual fund. Any exchange of shares in one fund for shares in another fund is a taxable exchange. This is true even if you exchange shares in one fund for shares in another fund within the same family of funds.” There is also a section on page 5 regarding “Share Acquired by Gift” | |
Death&Taxes (talk|edits) said: | 6 March 2008 |
| No one can jump on you for quoting Publication 564. Publications are eyes for the blind and while there are times when more corrective lens are needed, the case of mutual fund sales exchanges is not one, for I fear Code and Regs might not clearly state the obvious.
It is that mutual fund group from suburban Philadelphia that continually uses that phrase 'exchanged' when describing sale and causes confusion; on the other hand, Vanguard has been a pioneer in giving the client 'Average Cost' statements computing the gain or loss and dividing it into short and long term. | |
| 6 March 2008 | |
| Broker told them there would be little or no gain............! I assume the broker got acommission. Sales people are supposed to remove obstacles to sale, however not be misleading. And, clients off hear want they want to hear. Get the broker and the client together on a conference call and ask about this. Or, tell the client to shut it, and do the return. Remarks may seem unkind, however clients will walk on you if given the chance. | |
Death&Taxes (talk|edits) said: | 6 March 2008 |
| I always use the example that a person could get out of a fund very profitably and shift it to a money market in the same group and ask, 'do you mean you did not turn a profit?' When you say it that way, the light dawns in their eyes. | |
