Cost Basis Reporting
Overview of Tax Law Changes
The IRS’ new cost basis reporting requirements became effective on January 1, 2011 for most equities, followed in January 2012 by mutual funds and shares purchased on dividend reinvestment plans. Going forward, all firms responsible to produce 1099-Bs must include the gross proceeds of sales, the customers’ adjusted cost basis, and indicate whether the differences represent long term or short term gains or losses. The IRS will match firms’ reported numbers with investors’ returns. Penalties will be charged to firms misreporting cost basis. Brokers must accommodate multiple calculation methods according to customer preference: FIFO, Average Cost and specific tax lot selection, which may be based on LIFO, HIFO, Max Tax, Min Tax and others. The phased implementation imposed by legislative statute requires options, fixed income, and other instruments to become covered in 2013.Scope of Cost Basis Reporting Requirements
The requirements demand expansive data collection, maintenance and processing capabilities. In addition to systems and processing changes, new client communications and documentation procedures must be created to support the required functionality. Your Firm must be prepared to:- Provide clients with ability to elect and change lot selection and basis calculation methods
- Differentiate processing of covered and noncovered securities, dividend reinvestment plans (DRPs) and non-DRPs
- Expand data requirements and make extensive changes to IRS 1099-B reporting formats
- Track and report disallowed loss on wash sales
- Report on short sales and perform backup withholding
- Send/receive/correct cost basis information on transfer statements for all covered securities
- Track corporate actions to adjust cost basis on current client positions and securities transferred out
- Prepare for future implementation of Options, Fixed Incomes, Derivatives and other security types
- Select preferred tax lots and cost basis methodology
- Match Schedule D filings with brokers’ 1099-B information reported to the IRS
- Track wash sales across accounts/brokers
- Review brokerage statements and confirmations
- Advise broker-dealer of incorrect 1099-B information
Jordan & Jordan can perform a risk and readiness assessment to ensure your firm is operationally well- prepared.
Jordan & Jordan will bring its extensive cost basis experience and domain expertise to assist your firm in identifying operational issues and regulatory concerns to ensure the highest level of preparedness. Jordan & Jordan will pinpoint the areas your firm should be focusing on including implementations for DRPS and mutual funds, planning for fixed income and options, and providing excellent customer support. Click here for a description of the Cost Basis Reporting Assessment Program.Jordan & Jordan can help prepare your clients and staff for the impact of changes on year-end reporting and tax season.
Jordan & Jordan can offer assistance to reporting firms in developing an enhanced client communication plan that will raise client awareness and help avoid confusion in the future by better educating both your clients and internal personnel about the current and upcoming changes in tax reporting. Jordan & Jordan has authored a series of 12 modules clearly describing in detail the impact to the client of all changes to cost basis reporting regulations. As an additional option, Jordan & Jordan will deliver a series of corresponding modules that may be used to educate your employees and support personnel. These training modules will be tailored to explain the specific internal policies and procedures that have been developed and modified as part of your firm’s cost basis implementation program. Click here for a description of the Cost Basis Reporting Education Package.Why Jordan & Jordan?
Jordan & Jordan provides cost basis reporting expertise which leverages knowledge gained from both our industry involvement and our experience in working with broker dealer operations and technology at the firm level.Jordan & Jordan is experienced in managing large-scale projects, where industry timelines are critical and your internal resources must be used efficiently.
Jordan & Jordan’s familiarity with the securities trading process extends from decision support and order entry to back office processing and asset servicing, providing a solid foundation for process review, impact analysis and issue resolution.
Please contact Mary Lou Von Kaenel at 212-652-4483, or e-mail marylou@jandj.com for more information.