IRS Proposes Regulations on Stock Basis Reporting

The Internal Revenue Service has issued proposed regulations under a new law that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years.

The reporting will be optional for stock purchased prior to these dates. “This important reporting change will improve tax compliance while reducing the recordkeeping and paperwork burden for millions of investors,” said IRS Commissioner Doug Shulman in a statement. “These taxpayers will now receive the information they need to more easily report their gains and losses correctly.”

The proposed regulations implement a provision in the Energy Improvement and Extension Act of 2008. Among other matters, they describe who is subject to the reporting requirement, which transactions are reportable, and what information needs to be reported, while providing numerous examples.

The IRS also released for comment a draft version of the 2011 Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” that stock brokers and mutual fund companies will use to make the newly expanded year-end reports. Form 1099-B, long used to report sales prices, will be expanded in 2011 to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year.

The expanded form will also be used to report whether a gain or loss that has been realized on these transactions is long-term (that is, held more than one year) or short-term (held one year or less), a key factor affecting the tax treatment of the gain or loss. The expanded Form 1099-B, to be first used for calendar year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.   

The IRS is asking for comments on the proposed regulations and the draft Form 1099-B by Feb. 8. They can be submitted to 2011Forms1099@irs.gov.