As the regulations keep on rolling in, I have a great New Years resolution suggestion for all broker dealers, registered investment advisers and financial professionals: Make sure your cost basis reporting systems are in line now — thanks to new IRS requirements, this tax season could be a doozy.
The Regulatory Compliance Situation
Last year, provisions from the Emergency Economic Stabilization Act of 2008 (aka “the bailout bill”) went live, requiring broker dealers to provide cost basis reporting for all equities. Additional changes began on January 1, 2012, expanding the IRS’ cost basis reporting requirements to include:
- Mutual funds
- DRIPs
- Most ETFs
- RIAs
The Risks
Discrepancies between your firm’s data and your clients’ 1099-Bs could create unwelcome issues, including client audits (which would certainly not be good for client relationships) and IRS penalties. While accidentally incorrect 1099-B cost basis reporting comes with fines up to $350,000, the penalties are unlimited for purposefully disregarding the new requirements.
What You Need to Do
To ensure regulatory compliance, you must engineer your systems to accurately track and report cost basis. If you are not absolutely certain about your data, we can help you prepare for reporting by:
- Connecting you to the right data vendor.
- Managing your costs basis projects.
- Providing staff to help maintain and update correct cost basis information.
Accurate cost basis reporting is crucial — and can be much simpler with the right support. As you work to prepare for these new requirements, don’t hesitate to call me at 804.965.5403 with any questions or concerns. I might not always be by my phone, but I will always call you back.