Tax Lawyer's Blog

The IRS has long imposed an information reporting requirement on stockbrokers to ensure that stock traders report on their income tax returns the proper amount of their gross stock sale proceeds. Only recently, however, has it required those brokers to calculate and report those stock traders’ bases in the stock sold.

For honest taxpayers and their tax preparers this is good news. It has historically been difficult to accurately determine the basis in stock sold, especially where that stock was acquired long ago, on various dates and was subsequently split.

IRS Commissioner Doug Shulman said this about the new regulations:

This important reporting change will improve tax compliance while reducing the recordkeeping and paperwork burden for millions of investors. These taxpayers will now receive the information they need to more easily report their gains and losses correctly.

The Journal of Accountancy explains the proposed regulations (emphasis added):

Reporting by Brokers

Under IRC § 6045, as amended in 2008, brokers are required to report to the IRS their customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term.

This requirement applies to any broker who is subject to the gross proceeds reporting requirements of section 6045(a) with respect to the sale of covered securities (as defined in section 6045(g)(3)(A)). 

For most corporate stock, this reporting requirement will apply to any sale after Jan. 1, 2011. For regulated investment company or dividend reinvestment plan stock, the applicable date is Jan. 1, 2012. The information is reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.

Basis Determination

The basis reported by a broker is generally the total amount paid by the customer adjusted for commissions and the effects of other transactions occurring within the account. The proposed regulations contain detailed rules for determining the customer’s basis in the stock sold. 

Under the proposed rules, brokers would be required to adjust the basis they report to take into account information received on a transfer statement in connection with the transfer of a covered security (including transfers from a decedent and gift transfers) as well as information received from issuers of stock about the quantitative effect on basis from corporate actions.

However, the proposed regulations generally do not require a broker to adjust the reported basis for transactions, elections or events occurring outside the account. 

The proposed regulations clarify that, when a customer sells less than the entire amount of a security held in an account, the selling broker must follow the customer’s instructions, if any, for adequately identifying the security sold. If applicable, the broker must follow a customer’s instruction that average basis be used to compute the basis of the stock. 

Due Date

The due date to furnish to customers payee statements required under IRC § 6045 was extended by statute from Jan. 31 to Feb. 15, effective for statements required to be furnished after Dec. 31, 2008. In addition to forms such as 1099-B, the Feb. 15 due date also applies to any other statement required to be furnished on or before Jan. 31 of a calendar year if it is furnished with a statement required under section 6045 in a consolidated reporting statement.

The proposed regulations define “consolidated reporting statement” as a grouping of statements furnished to the same customer or same group of customers on the same date whether or not the statements are furnished with respect to the same or different accounts or transactions.

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