New IRS regulations for broker reporting requirements were created with the passage of the Emergency Economic Stabilization Act of 2008.  These regulations require financial institutions report not only gross proceeds but also the adjusted cost basis for covered securities sold and indicate whether the related gain or loss is long term or short term to both the client and the IRS.  Previously, only gross proceeds were reported on each account’s Form 1099-B.  Embedded within the laws in the Stabilization Act (or “TARP Bill”) were provisions for the new IRS-mandated cost basis reporting regulations for financial institutions.   Cost basis reporting to the IRS will start with the 2011 tax year.  Year-end tax packages will be sent to clients in January/February 2012, as usual.  Financial Advisors should provide clients with as much guidance and information as possible.  While Financial Advisors are not tax advisors, this change provides an opportunity to educate clients about possible tax implications of tax lot relief methods and any possible tax strategies they wish to implement.  Financial Advisors should take time to remind clients of the importance of speaking with their tax advisors or accountants for specific tax advice.   Financial Advisors will be required to capture additional information from clients regarding their preference on tax lot relief methods as well as other new policies and procedures that will surround order entry, journals and new account opening processes.   While it is always beneficial to know the cost basis of positions held in clients’ accounts, no push to retrieve information for non-covered securities is necessary.  It is possible more clients will be providing this information and requesting to have missing cost basis information populated due to the “noise” around the legislation.  Remember, non-covered positions will not be subject to detailed IRS cost basis reporting.

Stay Connected

Subscribe to Summit Brokerage

Personalized Industry Newsfeed For You

Thank you. You are now subscribed.


Thank you. We will get in touch with you shortly.