Tax Tips

On October 12, 2010, the Internal Revenue Service (IRS) issued final regulations under a law change that will require additional reporting to investors and the IRS by stock brokers and mutual fund companies for most stock purchased in 2011, and all stock purchased in 2012 and later years. The additional reporting is optional for stock purchased prior to January 1, 2011.

“This important reporting change means investors will now receive the information they need to more easily and accurately report their gains and losses,” said IRS Commissioner Doug Shulman. “We will continue to work closely with stakeholder groups to ensure a smooth implementation of the new requirement, which reduces the recordkeeping and paperwork burden for millions of taxpayers.”

Who is subject to this additional reporting?

Among other things, the new regulations describe who is subject to this additional reporting requirement, which transactions are reportable, and what information needs to be reported.
Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, has been expanded to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year. Stock brokers and mutual fund companies will use this form to make expanded year-end reports.

The expanded form will also be used to report whether gain or loss realized on these transactions is long-term (held more than one year) or short-term (held one year or less), a key factor affecting the tax treatment of gain or loss. The expanded form must be filed with the IRS and furnished to investors in early 2012.

Be Careful! The accuracy of these numbers rests on the shoulders of the taxpayer.

The cost basis on the expanded Form 1099-B could be wrong. If so, your tax professional can help you correct the information with the IRS so you will not be audited for this error. Also, you must report your stock sale capital gains or losses on a new Form 8949. Which sales are subject to the new reporting requirements?

Generally, the new requirements apply to a sale of a “specified security” that was acquired on or after January 1, 2011. These include:
1. Shares of corporate stock
2. Notes, bonds, debentures, or other evidences of indebtedness
3. Commodities, or contracts or derivatives connected with commodities