Adren Dale for the Wall St. Journal writes: New tax reporting by brokerages and other financial firms promises to make this tax season a more rigorous exercise for some of their customers. Forms 1099-B arrive in investors' mailboxes during January and February from both full-service brokers such as Morgan Stanley Wealth Management and discount brokerages such as Charles Schwab and Fidelity. This year they include new details that affect tax returns and will force some taxpayers, and their tax advisers, to be more accurate. Last year, firms had to show customers the tax cost basis of some of their stock for the first time. This year, mutual funds must report basis of shares. Generally speaking, cost basis is based on what the person paid for a security in the first place, and is used to figure capital gains and losses when someone sells it.
In the past, taxpayers sometimes fudged cost basis numbers--for example, when they couldn't remember how much they paid for long-held shares of a company. Advisers did their best to compute basis, sometimes based on a client's foggy recollection. Every adviser has a war story about how hard it can be to track down basis, especially if shares were a gift, or were bought long ago from a company with a tangled corporate lineage.
Now, the Internal Revenue Service can check those numbers against the Forms 1099-B.
For advisers and their clients, the new basis reporting has already meant time-consuming changes. Advisory firms in many cases logged long hours in 2011 and 2012 to get ready.
"I get sweaty palms when I see a Form 1099-B in the mail now," said Bill Fleming, managing director of PricewaterhouseCoopers Private Company Services practice.
Manchester Capital Management LLC is determined to help clients with basis, even though it doesn't prepare tax returns. Manchester is "going to be making sure that what's on the Form 1099-B is right," said Murray Stoltz, president of the firm, which is headquartered in Manchester, Vt., and manages $2.2 billion.
Manchester has clients authorize custodians of their accounts to send the forms directly to it; then, the advisory firm sends the forms to clients and their accountants, sometimes simultaneously.
Tax advisers last year had a hard time dealing with Forms 1099-B, as firms reported the basis of stocks for the first time. It was a "mess from the get-go," according to Abe Schneier, senior technical manager at the American Institute of CPAs. Accountants called the group to complain they weren't sure some basis numbers reported on the Forms 1099-B were accurate.
The AICPA worked with the IRS over the past year to try to make things run more smoothly for this tax season, said Mr. Schneier. IRS spokesman Eric Smith said taxpayers should look over Forms 1099-B carefully, as they should with other year-end statements like W-2 forms.
Last month, Vanguard told investors to expect changes on its Forms 1099-B for the 2012 tax year. Those it sends them will show basis of shares acquired before and after Jan. 1, 2012. To the IRS, however, it will report basis only for shares acquired on or after that date.
Some financial advisers say they aren't worried about the new mutual fund reporting. Funds, they argue, have voluntarily reported some cost basis information to shareholders for years. Others note, however, the information wasn't included on the Form 1099-B, and thus not reported to the IRS.
Problems with basis reporting are likely to crop up as the tax season unfolds, and taxpayers have had time to review Forms 1099-B.
For Missouri adviser Ken Bower, it's so far, so good. Mr. Bower, principal of MonetaGroup, an advisory firm in Clayton, Mo., with around $11.9 billion under management, said his firm hasn't seen any problems on Forms 1099-B from Schwab and Fidelity this year. That's partly due to the "heavy lifting" his firm did in the past to get ready.
One family he advised made a sale of old Proctor & Gamble Co. (PG) stock, and when Schwab sold the shares for the family in mid-2011, no one knew the original price. MonetaGroup tracked down the information and gave it to the family's accountant, as well as to Schwab, for the Form 1099-B.
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