Cost Basis Reporting System Needs Work, AICPA Tells IRS

August 15, 2012

The IRS revised the information that must be included when filing a Schedule D for 2011 due to a law that requires the basis of the security be disclosed when a taxpayer reports the information for determining capital gain or loss.

The IRS created this new form as a result of a law enacted in 2008 that requires brokers to file an information return reporting the basis of a “covered security” in addition to the gain or loss.” The return must include the customer's adjusted basis in the security and specify whether any gain or loss with respect to the security is short term or long term.  This information is required to be detailed as a part of the Form 1099-B that all brokerage customers receive.

However, since the 1099-B forms used by brokers are not uniform and each is presenting the information differently the time and cost of tracking each transaction has significantly added to the compliance burden on taxpayers and their tax return preparers. 

The American Institute of CPAs recommended in a letter to the IRS that it review and revise Forms 8949 and 1099-B to provide greater clarity in the tax information that must be reported by taxpayers, calling for greater standardization of the format and the data detailed on Forms 1099-B and capital gains/loss statements sent by brokers to individual taxpayers.

The AICPA also recommended that the IRS delay the matching of the cost basis information reported by brokers on Form 1099-B and what taxpayers report on Form 1040, Schedule D; otherwise, “it will result in a waste of time, money and resources for the IRS, taxpayers, and the tax preparer community,” stated Patricia Thompson, chair of the Tax Executive Committee.

“We believe that cost basis matching should be delayed until such time as there is more consistency and reliability in the process,” she said, adding a warning that the current problems will be exacerbated by the additional requirement to match mutual fund transactions that will take effect in 2013.