With tax information reporting deadlines looming in February, software vendors are doing their best to apply new rules from the draft of Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. The draft publication was released late in October and updated again on December 2, but it still is not finalized. Key changes relate to Form 1099-B and how dispositions of covered and noncovered securities should be broken out on recipient statements.
According to the specifications, brokers that use substitute statements to recipients should segregate dispositions of noncovered securities from covered securities, and further segregate long-term and short-term dispositions of covered securities. In addition, each section should indicate how to report these transactions on Form 8949 that will be filed with their individual income tax return. As a result, substitute statements for Form 1099-B could have up to five different sections:
- Short-Term Transactions for Which Basis Was Reported to the IRS
- Short-Term Transactions for Which Basis Is Not Reported to the IRS
- Long-Term Transactions for Which Basis Was Reported to the IRS
- Long-Term Transactions for Which Basis Is Not Reported to the IRS
- Transactions for Which Basis Is Not Reported to the IRS and for Which Short- or Long-Term Determination is Unknown (to Broker)
Additional information not reported to the IRS (such as basis, acquisition date, gain or loss) can be included within each section as long as section headings clearly indicate which sections were or were not reported to the IRS.
The final version of Publication 1179 is expected on December 26. Given the late date, it is fortunate the December version of the draft lifted the requirement for segregating 2011 dispositions. The segregated sections will be required for 2012 dispositions.