When your Form 1099-B shows sale proceeds but no cost basis, the IRS assumes the entire sale amount is taxable gain unless you supply the missing number yourself. A 1099-B with a missing cost basis is fixable: track down what you originally paid, adjust it for reinvested dividends and any corporate actions, and report the corrected figure on Form 8949 with the right box checked. Done before you file, it costs you an afternoon of records work. Left alone, it can cost you thousands in tax you don’t actually owe.
Why Box 1e Is Blank
Brokers report sale proceeds in Box 1d and, when they have it, cost basis in Box 1e.1Internal Revenue Service. Instructions for Form 1099-B They aren’t required to have it on every security. Mandatory basis reporting only applies to “covered securities,” and the cutoffs are by asset type: common stock acquired on or after January 1, 2011; mutual funds and dividend reinvestment plan shares acquired on or after January 1, 2012; debt instruments and options acquired on or after January 1, 2014.2Internal Revenue Service. Notice 2009-17 – Information Reporting of Customer’s Basis in Securities Transactions Anything acquired before those dates is “non-covered,” and the broker has no obligation to track or report its basis. Box 3 on the form usually flags a non-covered security.
Basis can also go missing on covered securities if you moved shares between brokers. The receiving firm may never have gotten the basis data from the old one. In that case the number exists somewhere, and a call to the original brokerage is usually the fastest route to it.
What Reporting Zero Costs You
If you file the return with the basis field blank or set to zero, the IRS treats the full sale proceeds as gain. Sell $50,000 of stock you paid $45,000 for, and a real $5,000 gain becomes a $50,000 gain on paper. The IRS matches the proceeds on your 1099-B against what you report, and a mismatch typically produces a CP2000 notice proposing tax on the assumption that everything you received was profit.
On top of the proposed tax, the IRS can assess an accuracy-related penalty of 20% on any underpayment caused by negligence or a substantial understatement.3Internal Revenue Service. Accuracy-Related Penalty The IRS lists failure to check the accuracy of income shown on an information return as an example of negligent behavior. For individuals, “substantial understatement” starts at the greater of 10% of the tax you should have reported or $5,000. Getting the basis right up front is far cheaper than defending zero later.
Finding the Original Cost
Start with what you have. A trade confirmation from the original purchase is the ideal document: it shows the date, share count, price per share, and commissions. Historical account statements are the next best thing, since they list each purchase individually. If the original brokerage account has been closed, call the firm anyway. Most keep records for years, though some charge a small fee to pull old files.
If the original documents are gone, the IRS accepts reconstruction from secondary sources.4Internal Revenue Service. Reconstructing Your Records (FS-2006-7) Useful ones include:
- Old tax returns showing dividends or gains from the same investment, which help establish dates and ownership. You can order transcripts of past returns from the IRS on Form 4506-T.
- Transfer agent or fund company records of reinvested dividends, often going back decades.
- Historical closing prices from financial data archives. If you know the approximate purchase date, the closing price on that date is a defensible estimate — less precise than a trade confirmation, and far better than zero.
- Bank or credit card statements from the period, if you funded the purchase from an account whose records you still have.
Whatever route you take, document the effort. Note the calls you made, the records you requested, and the sources you used for any historical prices. “I couldn’t find it” isn’t a defense if you never tried; a paper trail of a reasonable attempt is.
Adjustments That Change the Number
The purchase price by itself is rarely the final basis. A few events during the holding period shift it, and each one you miss pushes your reported gain in the wrong direction.
Reinvested Dividends
Every reinvested dividend is a separate purchase of additional shares, with its own basis. You already paid income tax on those dividends in the year they were distributed. Leaving them out of your basis when you sell means paying tax on the same money twice. This is the most common basis error on long-held mutual funds and DRIP shares.
Stock Splits and Stock Dividends
A split doesn’t change your total investment. A 2-for-1 split doubles your share count and cuts the per-share basis in half.5Internal Revenue Service. Stocks, Options, Splits, and Traders Stock dividends work the same way, and multiple splits over the years compound.
Return of Capital
A return of capital distribution reduces your basis, because it’s a partial return of what you invested rather than income. Missed adjustments here understate your gain when you sell.
Wash Sales
If you sold a security at a loss and bought the same or a substantially identical security within 30 days before or after that sale, the loss is disallowed and added to the basis of the replacement shares.6Internal Revenue Service. Income – Capital Gain or Loss Workout If your 1099-B flags a wash sale, the replacement shares’ basis should reflect the disallowed amount.
Inherited and Gifted Shares
Missing basis is especially common on inherited and gifted stock, because the recipient rarely has a purchase confirmation in their own name. The rules diverge sharply depending on how the shares came to you.
Inherited
Inherited securities generally get a basis equal to the fair market value on the date the original owner died, not what they originally paid.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This stepped-up basis often wipes out years of unrealized gains. If the estate elected an alternate valuation date six months after death, that value applies instead.
To establish the number, you need the date of death and the closing price of the security on that date. Probate records, the estate’s tax filings, or the attorney who handled the estate should have this. Securities that aren’t publicly traded may require an appraisal.
Inherited property is automatically treated as long-term regardless of how long you personally held it, even if you sell the next day.8Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property Any appreciation above the stepped-up basis qualifies for the long-term capital gains rate.
Gifted
Gifts don’t get a step-up. Your basis for calculating a gain is generally the donor’s original basis; the built-in gain carries over.9eCFR. 26 CFR 1.1015-1 – Basis of Property Acquired by Gift One wrinkle: if the stock was worth less than the donor’s basis at the time of the gift, you use two figures. The donor’s basis applies if you sell at a gain, and the fair market value on the gift date applies if you sell at a loss. If the sale price falls between the two, you have no gain and no loss.10Internal Revenue Service. Publication 551 (12/2025), Basis of Assets Getting this right means asking the donor (or working from their records) for both the original cost and the value on the day they gave you the shares.
Reporting the Corrected Basis
Once you have the number, it goes on Form 8949, which reconciles what the broker reported with what you’re actually reporting.11Internal Revenue Service. Instructions for Form 8949 Part I covers short-term transactions (held one year or less); Part II covers long-term (held more than one year).12Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets
Pick the Right Box
The checkbox at the top of each part tells the IRS how the sale was reported to them. When you received a 1099-B but the basis was not reported to the IRS, check Box B for short-term or Box E for long-term.11Internal Revenue Service. Instructions for Form 8949 Don’t check Box C or F. Those are for sales where you got no 1099-B at all, which is a different situation.
Fill In the Numbers
Enter the proceeds from your 1099-B in the proceeds column and the basis you determined in column (e). For Box B and Box E sales where the basis simply wasn’t reported, leave the adjustment column (g) at zero unless you have a separate reason to adjust (a wash sale, for instance).13Internal Revenue Service. 2025 Instructions for Form 8949 Gain or loss is proceeds minus basis.
If the 1099-B did show a basis and it’s wrong (say, the broker’s number ignored reinvested dividends), the transaction sits on a line with Box A or Box D checked. Enter the broker’s incorrect basis in column (e), put code “B” in column (f), and enter a correcting amount in column (g).13Internal Revenue Service. 2025 Instructions for Form 8949
Totals from Form 8949 flow to Schedule D, which combines all short-term and long-term results.14Internal Revenue Service. Instructions for Schedule D (Form 1040) The net figure lands on Form 1040, line 7a.15Internal Revenue Service. Schedule D (Form 1040) – Capital Gains and Losses
How Long to Hold On to the Records
Keep your basis documentation for at least three years after you file the return that reports the sale, not three years after you bought the shares.16Internal Revenue Service. How Long Should I Keep Records? If you underreport gross income by more than 25%, the IRS has six years to audit, so hold the file that long to be safe. For securities you still own, keep every purchase record, dividend reinvestment statement, and corporate action notice until you sell, then for the retention period on top of that. The whole reason missing basis is a headache is that the records are gone. Filing them while you still have them is the cheapest fix there is.