Barter News Weekly

Under new provisions that are to take effect as of January 2011, the IRS has announced that Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, will now show the cost basis of stock sold or exchanged during the year.

Under previous reporting rules, brokerages were required only to report sales prices of commodities, leaving the burden to the taxpayer to track their purchase price and any other expense that would factor into their cost basis.

Investors will now receive a 1099-B which shows the final cost basis, making it significantly easier for a taxpayer to determine the taxable amount that should be reported to the IRS on a Schedule-D.

“This important reporting change means investors will now receive the information they need to more easily and accurately report their gains and losses,” said IRS Commissioner Doug Shulman in his October 12th press release. “We will continue to work closely with stakeholder groups to ensure a smooth implementation of the new requirement, which reduces the recordkeeping and paperwork burden for millions of taxpayers.”

These new regulations, posted in the Federal Register, are one of the provisos of the Energy Improvement and Extension Act of 2008. The 1099-B regulations contained therein describe who is subject to this reporting requirement, which transactions are reportable and what information needs to be reported.

The expanded 1099-B form will also be used to report whether gain or loss realized on these transactions is long-term or short-term, key factors affecting the tax treatment of gain or loss.

The new regulations, to be first used for calendar-year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.

This significant change will impact assessments that the IRS has long made based on the sales-price reporting documents. Typically, a taxpayer who engages in 1099-B transactions must file a tax return to demonstrate to the IRS whether they had a gain or a loss. If a return was not filed, after repeated notices are issued, the IRS would assess a balance based on the assumption that the sales price was a straight gain.

This was done as a collection action to encourage a taxpayer to file their own timely and accurate tax return. Once a return was filed with the Schedule-D to show the actual gain, the IRS would usually abate the assessed balance.

The IRS would also audit and assess additional tax if cost basis information was not included on an individual’s original filing.

New reporting instructions now for the 1099-B should ease the bulk of these assessments as both taxpayers and the IRS will have an accurate reporting of any potential gains or losses.