The Internal Revenue Service issued final regulations under a 2008 law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011, and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS. This additional reporting is optional for stock purchased before these dates.
Affected are most stock acquired after 2010, shares in a regulated investment company (RIC) or stock acquired in connection with a dividend reinvestment plan (DRP) after 2011, and other specified securities acquired after 2012. This reporting change means that investors will receive the information they need to more easily and accurately report gains and losses.
These regulations implement a provision in the Energy Improvement and Extension Act of 2008 (the Act). The Act, generally effective January 1, 2011, specifies that brokers who are required to file information returns reporting gross proceeds of a “covered security” must include in the return the customer’s adjusted basis in the security and whether any gain or loss is long-term (held for over one year) or short-term (held for one year or less); a key factor affecting the tax treatment of gain or loss. Among other things, the regulations describe who is subject to this reporting requirement, which transactions are reportable, and what information must be reported.
Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” long used to report sales prices, will be expanded in 2011 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 these expanded year-end reports. The expanded form will also be used to report whether gain or loss realized on these transactions is long-term or short-term. The expanded form, to be first used for calendar year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.
A “covered security” is any specified security acquired on or after the “applicable date” if the security:
- was acquired through a transaction in the account in which the security is held, or
- was transferred to the account from an account in which the security was a covered security, but only if the broker received a statement regarding the transfer.
The applicable date is:
- Jan. 1, 2011, for stock in a corporation, other than stock in a RIC or stock acquired with a DRP,
- Jan. 1, 2012, for stock in a RIC or stock acquired in connection with a DRP, and
- Jan. 1, 2013 (or a later date that the IRS may require), for any other specified security.
The IRS also announced transitional penalty relief for brokers and custodians for reporting certain transfers of stock in 2011. The IRS will not assert penalties for failure to furnish a transfer statement, and the transferred stock may be treated as a noncovered security upon its later sale or transfer.