Form 1099-B: What to Do When Cost Basis Is Not Reported

When your broker sends a 1099-B, it should report both the sale proceeds and your cost basis (what you paid for the security). If Box 5 is checked, it means the broker did not report the basis to the IRS. You must reconstruct your basis from your own records and report it on Form 8949 to calculate your gain or loss correctly. Failure to do so risks a mismatch audit, in which the IRS assumes zero basis and claims you owe tax on the entire sale proceeds.

Why Box 5 gets checked

Box 5 on Form 1099-B is labeled “Cost or Other Basis Not Reported to IRS.” A broker checks this box when:

• The sale was of a mutual fund or exchange-traded fund (ETF) acquired before 2012 and the broker lacks records of the original purchase price.
• The sale was a covered security held in a legacy account and the broker did not have a cost-basis reporting agreement in place before the sale.
• The acquisition is unknown (for example, you inherited shares and the broker never received a cost-basis instruction from the estate).
• The asset is not covered under the cost-basis reporting mandate (certain securities, cryptocurrency, foreign securities, and holdings in old accounts).

The key rule: unless a security falls under the IRS cost-basis reporting mandate (covered securities bought after 2010 for stocks and ETFs, 2012 for mutual funds), the broker is not required to send basis to the IRS. When Box 5 is checked, it is your responsibility to supply the missing basis.

The danger of ignoring Box 5

If you ignore Box 5 and don’t report a cost basis, the IRS’s computer system sees only the sale proceeds on the 1099-B. When you file a return showing a gain smaller than the full proceeds (because you report a basis), the numbers don’t match the IRS records. An automated system flags this discrepancy, and you’ll receive a notice of deficiency, claiming that you owe tax on the full sales price minus zero basis. You’ll then have to respond with documentation (your original statements, brokerage confirmations, or reconstructed records) to prove the correct basis.

Filing proactively with your reconstructed basis avoids this hassle. Form 8949 is the proper place to report it.

How to reconstruct cost basis

If Box 5 is checked and you lack the original 1099-B or account statement, reconstruct your basis using available evidence:

1. Old brokerage statements: Pull your account statements from the period of purchase. They will show the transaction, the number of shares acquired, and the price paid (including commissions and fees if applicable).

2. Dividend and reinvestment records: If you held the asset for many years and received dividends or distributions, many brokers’ websites let you download account history even for closed accounts. Look for the original acquisition line.

3. Tax returns: If you sold shares in a prior year and reported the gain, that tax return shows the basis you used. If the basis was the same at the current sale, use the same figure.

4. Brokerage cost-basis tools: Most modern brokers (even if they checked Box 5) can pull historical data. Call or email the broker and ask them to research the purchase transaction. They often have archives going back 10+ years.

5. Confirmations from the original purchase: If you still have the original trade confirmation email or letter, it will state the exact basis.

Document everything. The IRS expects written evidence (statements, confirmations), not memory.

Reporting reconstructed basis on Form 8949

Once you have your reconstructed basis, you’ll report the transaction on Form 8949, Sales of Capital Assets, using the proceeds from the 1099-B and your own cost basis calculation.

Here’s the process:

• Column (a): Description (e.g., “100 shares XYZ mutual fund”)
• Column (b): Date acquired (from your records)
• Column (c): Date sold (from the 1099-B)
• Column (d): Proceeds (from the 1099-B)
• Column (e): Cost basis (your reconstructed figure)
• Column (g): Adjustment code “C” (to indicate you’re correcting a 1099-B discrepancy)
• Column (h): Gain or loss (proceeds minus basis)

The “C” code in column (f) tells the IRS that this is a corrected or reconstructed basis, not the one reported on the 1099-B. When you check column (g), the IRS’s automated matching system expects this explanation, so it doesn’t flag a false mismatch.

If the 1099-B proceeds are also wrong

Sometimes the proceeds are wrong too. For example, the 1099-B reports $10,000 in sale proceeds, but your confirmation shows you received $10,500 after the broker’s fees. On Form 8949, column (g) again accommodates an adjustment. You can use code “B” (for broker error) or code “W” (for wash-sale correction), depending on the type of adjustment. The adjustment amount goes in column (h), and the corrected gain or loss is the result.

Inherited securities and stepped-up basis

If you inherited the shares, the cost basis is the fair market value on the date of the decedent’s death (or, if elected by the estate, six months after death). This is called a stepped-up basis, and it is typically much higher than the original purchase price. The date of acquisition for a stepped-up basis is the date of death, not the date the decedent originally bought the shares.

When you sell inherited shares, reconstruct the stepped-up basis using the estate’s final income tax return (Form 706 or 1041), the decedent’s final return, or a professional appraisal done by the estate. Report this basis on Form 8949. The IRS will not challenge it if you have the estate’s documentation.

Gifted securities and carryover basis

If you received shares as a gift, the cost basis “carries over”—meaning you inherit the giver’s original basis, not the value at the time of gift. If the giver paid $5,000 for the shares and they were worth $8,000 when gifted to you, your basis is $5,000. The original donor should have provided this figure in writing at the time of transfer; if not, you may need to contact them or reconstruct it from their records.

Cryptocurrency and missing cost basis

Cryptocurrency sales often involve missing or incomplete cost-basis reporting because most brokers did not (and still do not, in some cases) report crypto sales on 1099-B at all. Instead, you receive a 1099-K (if the sale proceeds exceeded a threshold). You must reconstruct the cost basis from your exchange records, wallet transfers, and purchase confirmations. The principle is the same: form 8949 with your reconstructed basis and adjustment code “C.”

Timing considerations

Box 5 does not extend your filing deadline. If you don’t have a reconstructed basis ready by April 15, file for an extension (Form 4868) or file your return timely with Form 8949 showing your best-available basis reconstruction. Attach a note explaining that the 1099-B was Box 5 (no IRS reporting) and you’re supplying the basis from your records. The IRS is familiar with this situation and will accept well-documented reconstructions.

Avoiding Box 5 in the future

If you’re currently shopping for brokers or transferring accounts, look for a broker that offers cost-basis tracking and has reporting agreements with the IRS. Major U.S. brokers (Fidelity, Schwab, Vanguard, etc.) report cost basis on all new positions. If you hold old accounts with brokers that check Box 5 regularly, consolidate or ask the broker’s support team whether they can upgrade cost-basis reporting on your account.

See also