The Facts on Broker Reporting of Cost Basis

March 23, 2012 — 1,174 views  
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In October 2008, a multifaceted Act backed by Congress and signed into law by President George W. Bush titled the Emergency Economic Stabilization Act included Section 403 of the Energy Improvement and Extension Act of 2008. The Act amended the Internal Revenue Code to mandate that every broker file a return with the IRS to report the gross proceeds from any sale of a covered security. This included a customer's adjusted basis in the security and whether any gains or losses on the scale are classified as short- or long-term.

Starting with the 2011 tax year, brokers would be provided Form 1099B along with cost basis data. Brokers are now required to report gross profits, the corporate actions affecting costs basis, a report on unsuccessful sales or washes and when and to whom securities are being transferred. 

In accordance with the new reporting legislation, brokers must calculate and report the average for fund shares in an account that are considered covered securities, or else separate the average funds of the shares in an account that are not covered securities.

All of this will be included on the Form 1099B, which extends from January 31 to February 15 of the following calendar year.