Tax & Accounting Blog

Basis Reporting on Form 1099-B

1042-S, 1099, Cost-Basis Reporting, ONESOURCE, Tax Information Reporting, Trust Tax October 6, 2011

Interim Guidance on Issues Relating to the Basis of Stock

On June 22, 2011, the IRS issued Notice 2011-56.  The Notice provides guidance on some technical issues relating to the basis of stock subject to broker reporting under §6045, pending publication of superseding guidance.

Notice 2011-56 contains interim guidance for cost basis reporting on these topics:

  • Change From Broker’s Default Average Basis Method – The Notice explains that, when a taxpayer changes from the broker’s default average basis method to the cost basis method, the basis of the shares revert to cost basis.
  • 10% Reinvestment Rule and Fractional Shares – The Notice states that the expected regulations will explain that a dividend reinvestment plan (DRP) will not fail the 10% rule when cash is paid in lieu of fractional shares with the amount being too small to acquire any stock.
  • Lot Selection Methods Across Accounts – Guidance clarifies that not only is the average basis method applied on an account-by-account basis, but also FIFO and specific identification methods are applied as such.