IRS Delays Stock Basis Reporting Penalties

The Internal Revenue Service has granted transitional relief from the penalties imposed by recent information reporting requirements that apply to stock issuers when an organizational action affects the basis of the stock.

Notice 2011-18 provides transitional relief from the information reporting requirements in Section 6054B of the Tax Code. The notice provides that, for organizational actions occurring in 2011, the IRS will not impose penalties against issuers for missing the deadline to file a return reporting the action or make the return publicly available, provided that the issuer files the return with the IRS or makes it publicly available by Jan. 17, 2012. The notice does not apply to an issuer’s requirement to furnish the same information to the issuer’s stockholders and nominees of its stockholders. 

Section 403 of the Energy Improvement and Extension Act of 2008, enacted on Oct. 3, 2008, added Section 6045B to the Tax Code. Section 6045B provides that, for organizational actions beginning in 2011, an issuer of stock must file a return with the IRS to describe any organizational action—such as a stock split, merger, or acquisition—that affects the basis of a specified security. Under Section 6045B(d) and Section 6045(g)(3)(B), in 2011 a specified security is limited to stock in a corporation. The issuer generally must file the return within 45 days after the organizational action. The issuer must also furnish a corresponding statement to each nominee of the stockholder (or to each stockholder if there is no nominee) by January 15 of the year following the calendar year of the organizational action. 

Alternatively, the issuer is not required to file an issuer return with the IRS if it posts the return on its primary public Web site in a readily accessible format by the filing date.

The requirements under Section 6045B do not apply to issuers of stock in a regulated investment company until 2012.

Under the 45-day deadline, the earliest date that an issuer must file a return is Feb. 15, 2011, for an organizational action that took place on Jan. 1, 2011.

The IRS said it is developing the form and manner of an issuer return contemplated by Section 6045B(a), as well as considering what additional information, if any, needs to be provided on such a return. 

In terms of reporting organizational actions taken in 2011, Section 6721 imposes a penalty on any issuer of stock that does not timely file a correct issuer return with the IRS as required by Section 6045B(a). The IRS said it expects issuers to make a good-faith effort to comply with the requirements of Section 6045B(a); however, until an alternative form is developed and made available by the IRS, issuer compliance with Section 6045B(a) may be currently satisfied only through public reporting of information, as contemplated by Section 6045B(e).

Accordingly, the IRS said it would not impose penalties under Section 6721 for a failure to file an issuer return with the IRS within 45 days of an organizational action taken in 2011, provided that the issuer files the issuer return with the IRS (or posts the return on its Web site as provided in the regulations) by Jan. 17, 2012. 

This transitional relief does not apply to issuers of stock in a regulated investment company, which are not subject to the issuer-reporting requirements for 2011 organizational actions, according to the IRS.