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Cost Basis Reporting
Overview of Tax Law Changes
New IRS regulations related to Cost Basis went into effect on January 1, 2011. The intention is to collect additional tax revenues through more accurate reporting of cost basis and capital gains calculations.
The way that the rules are written, many types of companies are required to track Cost Basis information. The IRS will compare and match the companies’ reported numbers with investors’ returns. Penalties will be imposed on companies found to be misreporting cost basis.
Implementation will be phased to include:
- Equities – January 2011
- S-Corporation equities– January 2012
- Mutual Funds and Dividend Reinvestment Plans (DRPs) – January 2012
- Fixed Income, Options and other instruments – January 2013
Does this new law affect your company?
| Misconception |
Reality |
| 1: Systems and procedures currently
in place are adequate to meet the new requirements. |
Even systems that currently support
cost-basis accounting will need to make significant
changes to meet new IRS directives. |
| 2: Only
broker-dealers need to comply with the new
regulations. |
Types of firms to be impacted include:
- Broker dealers
- Transfer agents
- Custodians
- Wealth managers
- Private banks
- Issuers/stock plan administrators
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Transfer Agents (including Self Issuer TA’s) are required to request cost basis information and record it for covered securities – those that are acquired on or after January 1, 2011 and those for which Cost Basis information is received.
TA’s are required to track whether a transfer is a gift, transfer to same shareholder (whether the same registration or not), sale or inheritance (and default to gift treatment if this information isn’t available.) Gift date, date of death for inheritance and sale dates need to be tracked. The TA needs to get instructions on which lots are to be sold – whether based on FIFO or specific identification of lots. Statements need to be provided to the parties involved with the appropriate Cost Basis information.
StockTrack shareholder accounting software can help you track cost basis and meet these requirements.
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