Back in 2008 a new law was passed requiring banks and brokerage companies to report the cost basis of stocks, bonds, etc. sold during the year. This reporting is to start for purchases after December 31, 2010.
The IRS has now released regulations that this cost basis information will be reported on form 1099-B which is logical since the sales information is already reported on this form. As a CPA, I am actually looking forward to getting this information.
We probably spend more time trying to get cost basis information on sales of stocks and bonds during the year than acquiring any other data. Also, our office probably gets 20 or more letters from our clients that the IRS has sent them saying they owe tax due to stock sales. In some cases the proposed tax owed could be $100,000 or more. What the IRS assumes on any stock sale that is not reported on your income tax return is that your cost basis is zero and you held it for less than a year.
This means the client might have sold a bunch of stock where the gross sales price was $300,000, the cost basis was $300,001 and the client thought they did not have to worry about it since they broke even. Now, a year later, they get a letter from the IRS saying they owe $125,000 in tax. These are usually fairly easy letters to write back to the IRS and explain, but it requires getting the actual information and in a lot of cases preparing an amended tax return. This creates confusion for the client, extra fees to handle the letter and dealing with the IRS that can take more than 6 months to get a response from.
With the new rules, the sales price and cost basis will be incorporated in the same form and therefore, the IRS should be able to calculate the gain or loss not originally reported on the return. Congress expects this reporting requirement to raise several billions in new revenue. I actually think it was not raise much at all since they are already getting a bunch of money from taxpayers who simply pay the IRS when they get these letters since they assume the IRS is "right".
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