Tax & Accounting Blog

Cost Basis Reporting Developments

1099, Cost-Basis Reporting, Tax Information Reporting, Trust Tax, Trusts July 12, 2011

Cost basis reportingOver the last few weeks, the IRS issued guidance regarding cost basis reporting requirements that go into effect during 2011 and 2012.  Below is a brief summary of the recent guidance and links to access the details.

FAQs – In late April, the IRS issued a series of Frequently Asked Questions (FAQs) explaining rules for cost basis reporting by brokers in 2011 (2012 for mutual fund shares and stock in dividend reinvestment plans) under IRC Sec. 6045(g).  Some of the topics covered in the 68 FAQs include wash sales, covered securities, short sales, lot sales, and the time for furnishing statements.  Click to view the FAQs.

Notice 2011-56 Interim Guidance – With this Notice, the IRS issued interim guidance for cost basis reporting covering 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 – The 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.

Click to view Notice 2011-56.