The new cost basis rules: Preparing to comply without regulations

Martin Bentsen

Journal of Securities Operations & Custody, 2010, vol. 2, issue 4, 312-323

Abstract: During the past year many financial services companies have been preoccupied with a very specific portion of the Emergency Economic Stabilization Act, which was passed in October 2008. This ‘bailout’ law not only set up a facility to purchase ‘distressed’ assets and make capital injections into ‘troubled’ financial institutions, it modified the current information reporting scheme to include cost basis on 1099B returns and that has left many financial institutions ‘troubled and distressed’ once again. Leading consulting organisations and well-known industry pundits have offered their views on the new cost-basis reporting requirements and have contrasted them against the current 1099B proceeds of sale reporting scheme. The course of this paper will differ from these writers as the focus will not be so much on what the new law says but rather how financial institutions are dealing with the monumental task of preparing to comply with it. At the time of writing this paper, the Internal Revenue Service (IRS) has yet to issue any preliminary regulations, let alone final ones, and the law takes effect on 1st January, 2011. Subsequent to a solicitation for responses to 36 questions the IRS posed in February 2009, communications to and from the IRS have reduced significantly and many financial services firms have begun major Project Management Programs to accommodate tracking, transferring, presenting and reporting cost-basis information while left to fill in the blanks as far as what final cost-basis regulations will look like. This paper will provide a comprehensive understanding of how some industry participants are going about preparing for the implementation of cost basis in light of the issues that are known to be presented as well as the issues that cannot be known until the regulations have been issued and finalised.

Keywords: cost basis; cost basis methodology; specified securities; covered securities; Form 1099B; Automated Customer Account Transfer (ACAT); written statement (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2010
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