AICPA Asks IRS to Delay Cost Basis Reporting Deadlines

The American Institute of CPAs has written a letter to the Internal Revenue Service, asking the agency to postpone the effective dates for cost basis reporting for options and debt instruments.

The AICPA’s March 4 letter proposes further extension of the effective dates in Treasury Decision 9616 by one year each, moving the initial tracking of cost basis for options and debt instruments from Jan. 1, 2014 to Jan. 1, 2015, transfer reporting from Jan. 1, 2015 to Jan. 1, 2016, and reporting for complex debt instruments from Jan. 1, 2017 to Jan. 1, 2018. The new basis-reporting requirements were mandated by a 2008 law, the Energy Improvement and Extension Act.

“We generally support the concept of requiring brokers to report, both to clients and the IRS, a client’s adjusted basis in securities, or ‘covered securities’ within the meaning of the Act of 2008, when such securities are sold,” wrote AICPA Tax Executive Committee chair Jeffrey A. Porter. “The AICPA supports this concept because we believe that this procedure of reporting may increase tax compliance over the long-term. However, we respectfully request that the IRS take into consideration the technical problems and uncertainties associated with implementation of basis reporting from the perspective of taxpayers, tax preparers and brokers.”

The AICPA pointed out that it has repeatedly engaged with the IRS on implementing the new basis reporting requirements, including conference calls during and after the 2012 filing season, a comment letter in July 2012 and testimony before the IRS Information Reporting Program Advisory Committee in January 2013.

“Two issues of particular concern to the AICPA are the inconsistency among brokers in reporting the disallowed loss from a wash sale and the fact that there are different views among experts on how to properly account for market discount bonds that are not subject to the current inclusion election,” Porter wrote. “Without the clarifications and the consistency of reporting transactions from brokers, an undue burden is placed on taxpayers and tax return preparers to resolve these discrepancies (often without the needed information to make the proper determination).”

Porter added that the AICPA is also concerned that the final regulations mandate reporting procedures that are significantly different from traditional industry practices. He warned that could confuse taxpayers and result in inaccurate gain and loss reporting, and possibly cause double taxation of certain income.

“We specifically highlight the regulations prohibiting brokers from making income adjustments to the basis of underlying stock for compensatory stock options and other equity-based compensation arrangements granted after January 1, 2014, which is not only a change from common industry practice, but a reversal from the proposed regulations issued in 2011,” he wrote.

The AICPA also expressed concern with the requirement that brokers assume that taxpayers have made an election under Section 171 to amortize bond premiums on a taxable debt instrument, unless notified otherwise.

The Institute praised the IRS’s earlier decision to delay the proposed effective dates for the basis reporting involved with debt instruments and options from Jan. 1, 2013, to Jan. 1, 2014, but said a further delay is necessary to reduce compliance burdens for individual taxpayers and provide additional time for third-party reporting entities to change their programming and processes to comply with the regulations. Porter pointed to inaccurate and incomplete information found on many of the forms.

“During the 2013 filing season, our members and their clients experienced significant confusion from the implementation of cost basis reporting for stocks and mutual funds,” he wrote. “In many instances, our members found the Forms 1099-B to contain inaccurate, incomplete or inconsistently reported information by various third party reporting entities. The number of corrected Forms 1099-B was arguably greater than in prior years and many more original Forms 1099-B were received post February 15th. We believe the delay in expanding basis reporting may allow additional time for these issues relating to basis reporting for stock and mutual funds to come to a resolution. Adding additional complexity by expanding those securities requiring basis reporting may strain the ability of third-party reporting entities, software developers and tax preparers to provide complete and accurate data to both the IRS and taxpayers. This complexity may result in increased tax compliance costs for taxpayers.”

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Tax practice Wealth management Associations
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