Transfer statements are required as a means of passing along adjusted basis information on tax lots of covered securities when these are transferred to a receiving custodian or broker. Transfer statements are also required to inform a receiving custodian or broker which items are uncovered securities; a transferred security is presumed to be a covered security unless the transfer statement expressly states that the security is a noncovered security. These transfer statements, along with Issuer Notices and the expanded cost basis information now reported on Form 1099-B, are all part of the tax regime enacted in 2008 to give the IRS new tools to enforce taxpayer compliance in reporting the basis in security transactions – a “tax gap” law.
For 2012, transfer statements are required when transferring covered equities acquired in 2011 or later, covered equities subject to dividend reinvestment plans, and covered shares in a mutual fund subject to averaging acquired in 2012 or later. To be able to complete the required transfer statements, you need cost basis tracking information, including by tax lot. You need to know whether your organization is the one that must provide the transfer statement, whether the securities are covered, what goes into adjusted basis and holding periods, and whether terms of specific identification of transferred shares have been met.
Fixed income, options, commodities, forward or future contracts or derivatives with respect to commodities, and various other types of financial instruments have not yet been phased into the cost basis and transfer statement regime.
What information is required on transfer statements? Some of the general requirements are:
- An indicator that the security is covered;
- Customer’s name and account number;
- CUSIP number (if applicable);
- Number of shares or units;
- Classification of type of security;
- Original acquisition date;
- Any wash sale or reorg adjustment;
- The total adjusted basis of the security;
- Date the transfer was initiated and date settled;
- Date the transfer statement is furnished (must be within 15 days after settlement of the transfer);
- Information about who furnishes the statement and who receives custody of the security
There are additional rules for transfer statements if they are for inherited stock or stock transferred as a gift. These rules and many more for cost basis and transfer statements are detailed in the tax regulations at Section 1.6045A-1.
Failures to timely furnish the required transfer statements are subject to the same penalties as other types of information returns, $100 each event ($1.5 million limit per year) or $250 each event if there is a finding of intentional disregard.