Accurate Cost Basis Reporting: It's the Law
The Emergency Economic Stabilization Act of 2008 - popularly known as the "bailout bill" - was signed into law on October 3, 2008 to address the mounting global financial crisis. Section 403 of the Act contained provisions designed to ensure more accurate reporting of gains and losses on investor tax returns. These provisions place significant cost basis-related legal requirements on financial intermediaries.
| Under the new legislation, financial intermediaries must report accurate adjusted cost basis information to both investors and the IRS for: |
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Equities acquired on or after January 1, 2011 |
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Mutual fund and dividend reinvestment plan (DRiP) shares acquired on or after January 1, 2012 |
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Financial instruments such as debt securities, options and private placements acquired on or after January 1, 2013 |
Although these deadlines are several years away, intermediaries need to start preparing now, since penalties for non-compliance are stiff - up to $350,000 per year for incorrect Form 1099-B cost basis reporting, and unlimited penalties for intentional disregard of the new requirements.
Establish Compliance Today with NetBasis
Meeting the new regulations will require capabilities beyond the scope of most intermediaries’ current systems - capabilities immediately available efficiently and cost-effectively through NetBasis today. This functionality includes the ability to: |
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Report investor gains/losses as either short-term or long-term |
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Accommodate complex new wash-sale and short-sale accounting rules |
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Support multiple lot relief methods |
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Provide information necessary for cost basis reporting within 15 days of transferring customer accounts to another financial intermediary |
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Verify and correct cost basis information of older share lots received from counterparties |
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Provide cost basis for positions acquired both before and after the effective date specified in the legislation |
These examples highlight selected aspects of the new legislation, and are not meant to provide a complete view of the compliance issues faced by any specific organization. |
