Information reporting requirements affect corporations and transferors of securities.

• Author: Koppenol, Bonnie B.

The Energy Improvement and Extension Act of 2008, P.L. 110-343, ushered in a host of new information reporting requirements that affect not only brokers, mutual funds, professional transfer agents, custodians, and trustees but also corporations undertaking actions in their own stock and acting as transfer agents for their own securities. Unlike most information reporting, which occurs after year end, certain new reporting is required in as little as 15-45 days after an affected event occurs. The new requirements take effect in 2011, making immediate knowledge of the new rules imperative.

Sees. 6045A and 6045B were added to facilitate the new broker stock basis reporting regime, effective January 1, 2011, which mandates that brokers who are required to file gross proceeds information returns (Form 1099-B, Proceeds from Broker and Barter Exchange Transactions) for the sale of securities must now include, among other information, the customer's adjusted cost basis in the security. Sec. 6045A requires that every applicable person transferring a covered security to a broker must provide an information transfer statement within 15 days after settlement of the transfer. Sec. 6045B affects both public and private corporations, whether foreign or domestic, that undertake corporate actions that would affect a U.S. taxpayer's per-share cost basis in its share holdings. Reporting to the IRS is required within 45 days of the corporate action (January 15 of the following year, if sooner) and to shareholders by January 15 of the year following the action. Failure to comply could expose a company to sizable penalties (discussed below).

Sec. 6045A: Transfers of Securities

Sec. 6045A requires that every applicable person transferring a covered security to a broker must provide an informational transfer statement to the broker within 15 days after the date of settlement for the transfer. To understand to whom and when this requirement applies, one must understand who is considered an applicable person, who is a broker receiving custody, and what constitutes a covered security.

An applicable person transferring custody of securities is defined in Regs. Sec. 1.6045A-l(a)(4) to be any transferor who is a broker (a person who, in the ordinary course of a trade or business, stands ready to effect sales to be made by others), a person who acts as a custodian of securities, an issuer of securities, a trustee or custodian of an individual retirement plan, or any agent of these persons. The beneficial owner (the seller) of the security is not an applicable person. The applicable person is the party that has the responsibility to provide a transfer statement to a broker receiving custody of transferred shares.

Similarly, Regs. Sec. 1.6045A-l(a)(5) defines a broker receiving custody to be any broker, any person that acts as a custodian of securities in the ordinary course of a trade or business, any issuer of securities, and any agent of these persons. The beneficial owner (the buyer) of the security is not a broker receiving custody.

Example: K sells shares of Company Q stock to S, an individual. If K directs Q's transfer agent to issue a shares certificate directly to S, no transfer statement would be required because S is not a broker receiving custody. However, if S directs that the shares be delivered to S's account with broker B, Q (the transfer agent) must provide a transfer statement to B. A covered security is defined in the regulations to be any share of stock in a corporation acquired for cash and held in an account (a brokerage account, for example) on or after January 1, 2011. For transfer statement purposes, shares of a mutual fund (a regulated investment company (RIC)) are not considered covered securities unless acquired on or after January 1,2012. Likewise, shares in a dividend reinvestment plan (DRP) account are not considered covered securities unless acquired within, or transferred to, the DRP account on or after January 1,2012. Stock transferred to an account where the broker or other custodian receives a transfer statement reporting the security as a covered security is also a covered security.

For the purpose of defining a covered security, stock acquired due to a stock dividend, stock split, reorganization, redemption, stock...