Cost Basis Reporting in 2011: Information for Clients
Cost Basis Reporting in 2011: Information for Clients Recent changes in federal law will result in changes to cost basis reporting on 1099 tax forms sent to clients and the Internal Revenue Service beginning in tax year 2011. Janney has developed a client Fact Sheet regarding these changes – which are also summarized below. What are the General Cost Basis Reporting Changes? In most cases, cost basis is the amount you originally paid for a security. Special situations, such as when you have acquired securities by gift or inheritance, are covered by particular rules which determine your basis. In the past, Janney was not required to report cost basis to the IRS. However, Janney did provide cost basis information on your account statement(s) and 1099 Consolidated Statement in the non-reportable section for use by you and your tax advisor. Due to a change in IRS regulations, starting with the 2011 tax year, when you sell, redeem or dispose of a “covered” security, Janney is required to report the adjusted cost basis to the IRS—as well as whether the gain or loss is short-term or long-term. A covered security is defined as any security that will have the cost basis information reported to the IRS when the security is sold or redeemed. The cost basis must be adjusted for all wash sales, corporate actions, including stock splits, mergers, reorganizations, spinoffs and other corporate actions as well as other required IRS adjustments. Any security purchased before 2011 is deemed “noncovered” by the IRS, and therefore, no cost basis information will be reported to the IRS when the security is sold or redeemed. When Will Cost Basis Reporting Begin? The IRS requires firms to begin reporting cost basis in a phased approach over the next three years. Cost basis will be reported beginning in specific tax years (2011, 2012 or 2013) for each type of security going forward. Provided below is a schedule for IRS cost basis reporting of covered securities: • Tax year 2011 – IRS cost basis reporting will begin for sales of equities, both common and preferred, exchange-traded funds, and real estate investment trusts purchased in 2011 and thereafter. IRS reporting for wash sales and short sales will also begin. • Tax year 2012 – IRS cost basis reporting will begin for sales of both open- and closed-end mutual funds purchased in 2012, and securities purchased through dividend reinvestment plans in 2012 and thereafter. • Tax year 2013 – IRS cost basis reporting will begin for sales of bonds and other fixed income securities, master limited partnerships, unit investment trusts, and all other tradable securities purchased in 2013 and thereafter. For more information, please contact your tax advisor or Financial Advisor. IRS Circular 230 Disclosure: Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
