Final Regs. on Stock Basis Reporting Requirements

By Alistair M. Nevius, J.D.


The IRS issued final regulations on October 13 regarding a new requirement for reporting basis and other information by stockbrokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years (T.D. 9504).

The final regulations implement a provision from the Energy Improvement and Extension Act of 2008, P.L. 110-343, that requires brokers to report a customer’s adjusted basis in sold securities and classify gain or loss as long term or short term. Among other things, the regulations describe who is subject to the reporting requirement, which transactions are reportable, and what information must be reported. They also describe an “average basis method” that taxpayers can use to compute the basis of certain stock.

The regulations adopt a number of suggestions the IRS received in response to the proposed regulations that were issued in December 2009 (REG-101896-09). The regulations also provide numerous examples of how the rules work.

The IRS says Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, will be expanded in 2011 to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year, and stockbrokers and mutual fund companies will use Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to report this information at year end. They will also use the expanded form to report whether gain or loss realized on these transactions qualifies as long-term or short-term gain or loss.

Expanded Form 1099-B will first be used for calendar-year 2011 sales and must be filed with the IRS and furnished to investors in early 2012. Commentators had requested a delay in the effective date to allow enough time for affected parties to make administrative changes to comply with the rules. Because the effective date is mandated by statute, the IRS did not adopt this suggestion, but it did separately announce penalty relief for brokers and custodians for reporting certain transfers of stock in 2011 (Notice 2010-67).

Under the transition relief, the IRS will not assert penalties under Sec. 6722 for failure to furnish a transfer statement for any transfer of stock in 2011 that is not incidental to the stock’s purchase or sale.

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