Everything You Don’t Know (But Should) About Schedule D .

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Everything You Don’tKnow (But Should) AboutSchedule D and CapitalGains ReportingAmerican Institute of Certified Public RESOURCES/STANDARDSETHICS/Pages/default.aspx

Today’s Agenda How We Got HereCode & Regulation BasicsKey ConceptsThose Darn Forms: 1099-B and 8949Reporting Issues: GIGO?What’s Still To Come

How We Got Here

It Was All About The Tax Gap Tax year 2001 – 38% of taxpayers misreported theircapital gain/loss, lost revenue calculated to be atleast 11 billion (GAO-06-603, GAO-11-557) Taxpayer Advocate’s 2005 Annual Report proposesmandatory broker reporting of cost basis August 2006 – JCT Staff proposal issued

It Was All About The Tax Gap May 2007 – SFC Staff releases proposedlegislative language October 2008 – Energy Improvement andExtension Act of 2008 becomes law October 2010 – IRS issues final regulations(TD9504) January 1, 2011 – 1st purchase of a coveredsecurity Ongoing – New Forms and New Regulations

Code & Regulation Basics

When In Doubt,Read the Source Code Sections– § 6045 – See subsections (g) and (h)– § 6045A – Transfer reporting– § 6045B – Corporate action reporting

When In Doubt,Read the Source Regulations– TD 9504 - Final Regulations on Stocks,DRPs and Mutual Funds– REG-102988-11 - Proposed Regulationson Debt Instruments and Options– Notice 2012-34 - Delayed effective dateof REG-102988-11– TD 9616 – Final Regulations on DebtInstruments & Options

Key Concepts

Terms You Need ToKnow & Understand Covered vs. Uncovered Security Lot Relief Method– FIFO, Average Cost, Specific ID Holding Period – Long or Short Default Method

Terms You Need ToKnow & Understand Account by AccountWash Sale RuleSettlement DateTransfer ReportingIssuer Action

The forms1099-B and 8949

Form 1099-B –Circa TY 2008

Form 1099-B –Circa TY 2011

Form 1099-B –Circa TY 2012

Form 8949 –Circa TY 2011

Form 8949 –Circa TY 2012

Adjustment Codes2012 Form 8949

Adjustment Codes2012 Form 8949

Adjustment Codes2012 Form 8949

Reporting Issues – GIGO?

Why are there issues? IRS rules for brokers/taxpayers don’t match Late issuance of forms & instructions (Pub.1179) Broker, clearing house and tax prep companysoftware issues Account Transfer issues Gift and Inheritance Issues Return of Capital Adjustments And yes, some are just sloppy or lazy

What went wrong andneeds fixing - 2011 2011 was a minor disaster– Will IRS issue a flood of CP2000 notices?– AICPA has requested relief– reporting.pdf

What went wrong andneeds fixing - 2012 2012 – much improvement, but continuedissues– Wash Sales – especially in multiple accounts– Short Sales – particularly gains on sales closednear year end– Publicly Traded Partnerships – always anightmare– Some misreporting of covered vs. uncovered– Some substitute 1099s are still a mess– Some original 1099s were super-late

Late season “Oops” for IRSE-file Returns When using code “M” and attaching adetail statement (PDF or with Form8453), the original instructions forForm 8949 said to put the words “SEESTMNT” in columns (b) and (c) – thedate fields.

Late season “Oops” for IRSE-file Returns On April 12, IRS notified EROs andElectronic partners that this wascreating a “processing issue”.Instructions were immediately revisedto put the Broker name and “SEEATTACHED STATEMENT” incolumn (a) – the description field- andleave (b) and (c) BLANK.

Late season “Oops” for IRSE-file Returns In addition, filers of Forms 1065,1065B, 1120 and 1120S were givenpermission to enter “AVAILABLEUPON REQUEST” and NOT providethe detail Any effect on already filed returns? WILL THESE BE THE RULES FOR2013 RETURNS?

Which 1099-B is correct?

Which 1099-B is correct?

What’s wrong with this?

A Useful Substitute1099-B Summary

A Useful Substitute1099-B Summary

What's Still To Come

Looking Ahead to the2014 Filing Season Forms 1099-B, 8949 and Schedule D will berevised for third time in three years(Unofficially) 1099-B – new and renumbered boxes, addingForeign Tax information, revised (hopefullyclearer) wording

Looking Ahead to the2014 Filing Season 8949 – minor changes to form, now used forall filers (1120, 1120S, 1040, 1041, 1065 and1065B) Schedule D – summary totals directly onSchedule D for covered securities with Noadjustments (seems to preclude even brokerreported “wash sale losses disallowed”)

Looking Ahead to the2014 Filing Season April 17, 2013 – IRS issued TD 9616, thefinal regulations on basis reporting of debtinstruments and options. Very detailed, phased in process starting1/1/2014.

Looking Ahead to the2014 Filing Season First phase in 2014 covers (partial list):– Debt instruments with single fixed paymentschedule for which a yield and maturity can bedetermined– Debt instruments with alternate paymentschedules for which a yield and maturity can bedetermined (such as instruments with a put or calloption)– Most options

The Future – Bright orBleak? AICPA discussions with IRS, SIFMA,IRPAC and other relevant parties willcontinue Tax professionals will need to be moreproactive in discussing these issues with theirclients and their other financial advisors(RIAs, brokers, custodians)

The Future – Bright orBleak? Sign of Hope? - in TD 9616, IRS explicitlystated:– The Treasury Department and the IRS arecontinuing to review all aspects of theinformation reporting process and are exploringways to reduce the compliance burden for bothbrokers and for information recipients. New software solutions to be developed? And, of course, Congress may change therules!!!

Questions?American Institute of Certified Public RESOURCES/STANDARDSETHICS/Pages/default.aspx

Tax year 2001 – 38% of taxpayers misreported their capital gain/loss, lost revenue calcu

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