Proposed Regs. on basis reporting by brokers.

• Author: Nevius, Alistair M.

The IRS issued proposed regulations on December 16 relating to how securities brokers report sales to the IRS and how stock basis is determined (REG-101896-09). The regulations propose to set a February 15 deadline for brokers to supply certain information statements. The proposed rules reflect changes made in 2008 by the Energy Improvement and Extension Act, P.L. 110-343.

Reporting by Brokers

Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS their customers' adjusted basis in securities sold and to classify the customers' gain as long term or short term. This requirement applies to any broker subject to the gross proceeds reporting requirements of Sec. 6045(a) with respect to the sale of covered securities (as defined in Sec. 6045(g)(3)(A)).

For most corporate stock, this reporting requirement will apply to any sale after January 1, 2011. For regulated investment company or dividend reinvestment plan stock, the applicable date is January 1, 2012. The information is reported on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.

Basis Determination

The basis reported by a broker is generally the total amount paid by the customer adjusted for commissions and the effects of other transactions occurring within the account. The proposed regulations contain detailed rules for determining the customer's basis in the stock sold.

Under the proposed rules, brokers would be required to adjust the basis they report to take into account information received on a transfer statement in connection with the transfer of a covered security (including transfers from a decedent and gift transfers) as well as information received from issuers of stock about the quantitative effect on basis from corporate actions. However, the proposed regulations generally do not require a broker to adjust the reported basis for transactions, elections, or events occurring outside the account.

The proposed regulations clarify that when a customer sells less than the entire amount of a security held in an account, the selling broker must follow the customer's instructions, if any, for adequately identifying the security sold. If applicable, the broker must follow a customer's instruction that average basis be used to compute the basis of the stock.

Due Date

The due date to give customers payee statements required under Sec. 6045 was extended by statute from January 31 to February 15, effective for statements required to be furnished...