Client didn't claim huge capital loss in 2012

Client, after talking to his broker about capital losses suddenly realizes he did not claim the full amount of capital loss (approx $300K) that he was entitled to back IN 2012 when he sold his WFC stock. He did not have any significant capital gains in subsequent years and since he did not claim the loss did not utilize the $3K allowance against ordinary income. Flash forward, he now wants out of the market, hence the convo with his broker and now wants to claim the capital loss carryover that originated back in 2012 toward capital gains he will incur in 2021.

Obviously I can't amend the 2012 return. So I've come up with only one option which I'm not sure is viable.

Option 1: Claim the capital loss carryforward on the 2021 return. Provide all the details via Form 8275. Even though it wasn't utilized, to be conservative, I would reduce the loss carryforward $3K for each subsequent year since it could/should have been utilized.

Seeking opinions as to whether this is a viable solution.

Thanks

Claim the carryover in 2021 to the extent it would have been available after reduction by use in the intervening years.
Explain in an attached schedule how you came up with the number.
Why the form 8275?
Why not also amend the open years and use the $3,000 in each year?

Lots of previous threads on this type of issue - unclaimed carryovers of various kinds.

Actually you can amend to 2012 and forward returns. Its just that you wont get any refunds from the closed years. However I don't think its necessary to file the amendments to correctly report his capital loss carry forward on his 2020 or 2021 tax returns. Just calculate the carryforward as if he had taken it in each previous year.

Amend open years if valuable and include proper carryover on 2021 return. No 8275 necessary.

to be conservative, I would reduce the loss carryforward $3K for each subsequent year since it could/should have been utilized.

That's not conservative, it's close to what you're required to do. Do as Len said and claim it "to the extent it would have been available after reduction by use in the intervening years". That means you also need to reduce it by any gains in those years.

I agree with the others except that you don't need to file amended returns. Rather, you only need to establish the amount of the capital loss that would have carried forward to the 2021 return. This was one of the issues in Knowles, TCM 2011-23.

https://scholar.google.com/scholar_case?case=7570017289364924697&hl=en&as_sdt=6&as_vis=1&oi=scholarr

dave why would you not amend open years if you use up carry forward and save some taxes in those years?

Have had clients choose in this situation to not amend to avoid the cost to prepare for a nominal tax savings

I am not entirely clear about the original post...

...and since he did not claim the loss ...

The client had the loss on the original 2012 return, but did not calculate and use the carry forward on later years?
OR...
The client did not report the capital loss that arose in 2012 AT ALL, but now wants to use the carryover?

Seems like if the IRS "never got a chance" to look at the original transaction (if it was never actually on the 2012 return), so how could he now be allowed to carryforward the loss? That seems very different from forgetting to carryforward the loss from 2012 on the intervening years till now.

Interesting observation, Joan TB. All of us I have assumed he reported it and did not carry it forward. Upon reading OP again, he suddenly realizes he did not claim the full amount of capital loss (approx $300K) that he was entitled to back IN 2012 when he sold his WFC stock.. But I don't think that precludes him from taking the advice offered above as long as he can prove the loss.

I am curious. What is/was WFC stock?

I think Wells Fargo…which has had a good run unless purchased right as they started merging with AG Edwards and the like.

Seems like if the IRS "never got a chance" to look at the original transaction (if it was never actually on the 2012 return), so how could he now be allowed to carryforward the loss?

Yeah, “if.” The fact is, the IRS can always look at the original transaction. If the loss carryforward, stemming from a 2012 loss, shows up on a tax return for the first time in 2020, the IRS can most certainly look at the original transaction. And if they don’t like what they see, they can eliminate the carryforward showing on the 2020 return. They could do the same exact thing if the loss was reported in 2012 and properly carried forward on every subsequent return. All the IRS can’t do is assess tax on a closed year.

But I don't think that precludes him from taking the advice offered above as long as he can prove the loss.

Totally agree.

Just a thought. Is he so wealthy that he can overlook that big a loss? And did he not have a brokerage involved, and a 1099B? Or was this some sort of private transaction?

Remember, back in 2012, IRS was only matching gross proceeds. There may have been little difference in the aggregate.

The client is all over the place and I've had to do further investigation. I now have a more complete picture of what happened. This was actually a 2011 transaction. The basis was derived from an inheritance from a bank that Wachovia bought long ago. Of course Wachovia cratered & WFC had to purchase. I've finally gotten my hands on the 706 where the original basis (FMV at DOD) was derived. The basis was so low that even with the forced sale of Wachovia at fire sale prices, still didn't have much of a loss to report. I believe it was reported accurately back in 2011. Unless there is additional info that the client provides that I don't yet know about, this will turn out much ado about nothing.

Thanks for all of the advice/comments.