- February 01, 2012
You’ve heard it before: Don’t believe everything you read. And in the case of the many stories on the new cost basis legislation, it’s good advice to follow.
New tax laws have changed the rules about cost basis reporting. The law now mandates that brokers and other financial service intermediaries are required to report adjusted cost basis to their clients, but only for stocks purchased AFTER Jan. 1, 2011.
Well-respected mainstream media newspapers and magazines have reported on the new tax law, but their articles have only told half the story. Most stories have failed to emphasize that institutions are only going to be giving taxpayers a 1099B that shows adjusted cost basis for stocks purchased in 2011 and later and nothing else. However, the IRS expects the taxpayer to show cost basis for ALL their stocks and other investments purchased BEFORE Jan. 1, 2011. This gap between what the broker will provide and what the tax payer must ferret out on his own is not being defined in media coverage, and the consequence is a confused taxpayer who could end up making mistakes and being financially penalized.
An IRS National Research Program in 2005 found $11 billion in underreported capital-gains taxes and one can only assume that number has grown in subsequent years. With a government struggling for money, it’s not surprising that the IRS sees cost basis as an easy place to crack down and increase the coffers. This means this area of your tax return will be more closely scrutinized and any mistakes could result in audits and penalties.
Clearly, the taxpayer needs someone to explain the ins and outs of this new law in a simple, easy-to-understand way. That’s why Networth Services and H&R Block have teamed up to offer a FREE interactive “Town Hall” Webinar, “How will the New Cost Basis Legislation Affect Me” on Wednesday Feb. 22, 2012 at 1 pm EST/10 pm PST.