Cost Basis Reporting Overview | Wolters Kluwer
  • Insights
  • Welcome!

    Welcome to the Cost Basis Reporting Resource Center—your source for essential cost basis reporting law compliance information.

    Cost basis reporting is law. The Final Phase 3 Regulations Pose Severe Compliance Challenges for Brokers

    Wolters Kluwer has been a leader educating the industry about this law and about the technology and information complexities that need to be addressed to meet its requirements. Additionally, we offer both the tax intelligence expertise and the technology to help you comply.

    Learn more about our solutions

    What You Can Find on the Cost Basis Reporting Resource Center

    Know the law - Read the law, and other important documents relating to the cost basis reporting law.

    Stay current - Access pertinent industry articles and webinar content.

    Most Systems Need Substantial Overhauls.

    The Final Phase 3 Regs impose a calculation conformity requirement between basis reporting calculations (on Form 1099-B) and interest & OID reporting (on Forms 1099-INT & OID) that did not previously exist. Dated or inadequate systems for Form 1099-INT or OID and the need to calculate adjusted basis for transfers reported during the year before 1099s are prepared will force upgrades to such systems and their reconciliation with basis reporting systems.

    Brokers will likely need to make significant investments in understanding the specialized tax rules for debt, options and single stock futures (SSFs) in order to determine the data requirements and specialized calculations needed to comply with the basis reporting rules of the Final Phase 3 Regs.

    Brokers will need to be prepared to make additional changes to their reporting processes due to necessary revisions to Form 1099-B to take into account the new rules contained in the Final Phase 3 Regs. Revised forms could be issued more than once. And the expanded calculation rules for determining basis adjustments for debt could result in additional changes in the existing Form 1099-INT & OID reporting rules besides the changes to interest and OID reporting that the Temp Bond Premium Offset Regs will require.

    Noncompliance Penalties are Significant.

    Up To $3 Million in Potential Penalties

    There is a significant tax penalty risk if the basis and holding period information reported on Form1099-B is incorrect. Reporting penalties were increased under the Small Business Jobs Act of 2010 (P.L. No. 111-240) enacted on Sept. 27, 2010. There are separate penalties for 1099s provided to the IRS and 1099s provided to taxpayers, and they aggregate to $100 per incorrect 1099 with a maximum annual aggregate of $1,500,000 each ($3m total). Errors due to intentional disregard have a minimum $250 per return with a penalty amounting to the greater of either the minimum or 10% of the amount that should have been reported, with no maximum annual limit. Penalty for incorrect 8937 is the same as for 1099s.

    Read The Law

    On Friday, October 3rd, 2008, President George W. Bush signed H.R. 1424, the Emergency Economic Stabilization Act of 2008 into law (the Act, Pub. L. No. 110-343). The law requires cost basis reporting by brokers to the Internal Revenue Service (IRS) and to taxpayers. The initial effective date for cost basis reporting for most stocks applies to stock acquired on or after January 1, 2011; for mutual funds and dividend reinvestment plan stock (or similar arrangements) acquired on or after January 1, 2012; and for debt instruments, options and other covered securities acquired on or after January 1, 2013. The provision is scored to raise $6.67 billion over a ten year period. To review the law, click here and go to Title IV, Section 403.

    Cost Basis Commentary

    Are tax exempt bonds with OID exempt from cost basis reporting?

    QUESTION: Do the final cost basis regulations require calculation of adjusted cost basis to be reported on 2014 Form 1099-B for tax exempt OID bonds sold? Tax-exempt OID income is not reportable on Form 1099-OID currently so shouldn't tax-exempt bonds with OID be excluded from cost basis reporting on Form 1099-B?

    Click the here for the answer.


  • Click on the 'Edit' icon (edit icon) in the top-right corner of this widget to select the Taxonomy you wish to display.