AICPA Recommends IRS Delay Matching of Documents Reporting Capital Gains and Losses
Published August 01, 2012
The American Institute of CPAs on July 31 recommended that the Internal Revenue Service delay matching the basis information the law requires brokerage firms to report about taxpayers’ capital gains and losses with what taxpayers report on their income tax return. The AICPA said in its letter, “If the IRS initiates a matching program for 2011, we believe it will result in a waste of time, money and resources for the IRS, taxpayers, and the tax preparer community. We believe that cost basis matching should be delayed until such time as there is more consistency and reliability in the process.”
The IRS is phasing in new basis reporting requirements that became mandatory on Jan. 1, 2011 and that were enacted as part of the Energy Improvement and Extension Act of 2008. The term “cost basis reporting” refers to identifying the actual cost of a security for income tax purposes.
The AICPA said taxpayers, brokers and tax preparers faced considerable challenges for 2011 tax year returns. “For tax years prior to 2011, taxpayers reported capital gains and losses on Form 1040, Schedules D and D-1 utilizing the following ‘buckets:’ (1) short-term capital gains and losses; and (2) long-term capital gains and losses. Moreover, for tax years prior to 2011, the IRS accepted summary totals in lieu of reporting the details of each transaction on Schedule D and D-1. Taxpayers and their tax return preparers considered this latter reporting method as a balanced tax administration procedure whereby the IRS was provided with the necessary transactional information to conduct a review or examination of the taxpayer’s capital gains and losses and, at the same time, there were no unreasonable compliance burdens placed on taxpayers.”
The introduction of Form 8949, Sales and Other Dispositions of Capital Assets, significantly increased compliance burdens for the preparation of a taxpayer’s Form 1040 (assuming the taxpayer has capital gains and losses), including the potential cost and time dedicated to preparation of that return, the AICPA said. “Beginning with 2011 tax returns, a taxpayer might potentially be required to include as many as six Forms 8949 with the Schedule D included with his or her individual tax return.”
The AICPA said the challenges brokerages face in implementing the basis reporting requirements have resulted in “large variations” in how brokers have reported 2011 tax year transactions on capital gains/loss statements and Forms 1099-B and warned “this issue will be further exacerbated for 2012 tax filings since the rules will also apply to mutual fund transactions.”
The AICPA also recommended that the IRS seek greater standardization of the format and the data detailed on the Forms 1099-B submitted to the IRS and capital gains/loss statements sent by brokers to taxpayers. In addition, the AICPA said the IRS should review and revise Forms 8949 and 1099-B to provide greater clarity in the tax information that must be reported by taxpayers, the format for reporting such information and the procedures for resolving and disclosing discrepancies between a taxpayer’s records and the information supplied by a broker.
If you have questions or would like to speak to someone about the letter, please contact Shirley Twillman, AICPA senior manager of media relations, at email@example.com or call 202.434.9220.