But Keep Good Records

Such is the takeaway from Bengt N. and Judy H. Bengtson, T.C. Mem. 2011-50, filed 3/1/11.

The Bengtsons invested with Mrs. Bengtson’s sister, who, using her own brokerage account in which the Bengtsons had no interest, selected and paid for shares in various public companies with her own and the Bengtsons’ money. Sis made money on her stock picks in 1999, and the Bengtsons gave her money to pay the taxes. Came the 2000 stock market debacle (can anyone remember back that far?), some of Sis’ hot picks went south, and the Bengtsons took capital losses in 2005, within the seven-year worthless securities window.

Bengt was diligent, pursuing Sis for cost bases, dates of purchases and sales and other necessary data, but Sis stonewalled him. The Bengtsons had no records showing bases, dates of purchases and sales, or anything but checks to Sis.

When the dates when the shares became worthless were disputed on examination, the Bengtsons filed amended returns for the years the IRS maintained were the proper years. It didn’t help; Judge Foley was sympathetic, but no records, no deduction.

The Bengtsons did get a bye, though. He eliminated the accuracy penalty, invoking Regulation Section 1.-6664(b)(1), holding that the Bengtsons tried to get information from Sis, read the IRS publications, and acted in good faith.

So trust me, trust me, by all means. But before you invest or send money, as the brokers say, make sure you’ll be getting the requisite records.