Cost Basis for Issuers

How does cost basis reporting affect you, an issuer?

1099-B Reporting. All issuers of common stock are required to report the adjusted cost basis of shares acquired on or after January 1, 2011. Reporting to each shareholder and to the IRS in the form of a 1099-B will be required upon the sale or disposition of shares.

Corporate Action Reporting. Issuers are required to report both to the IRS and to shareholders (via permanent website posting) specific information about how corporate actions affect the cost basis calculation of shares. Corporate actions include, but are not limited to, dividends, stock splits, mergers, and acquisitions. The information must be made available to shareholders and the IRS by 45 days after the effective date of the corporate action, or by January 15 of the following year (whichever is earlier).

Fines and Penalties. Perhaps no complex tax regulation is complete without fines and penalties for failure to comply. Issuers who don’t report properly are subject to fines as steep as 10% the amount that should have been reported with no maximum limit. In the case of mergers and acquisitions, both the acquiring and acquired companies are held “jointly and severally liable” for failure to properly report the adjusted cost basis. In addition, issuers remain liable for errors even if they use an agent to satisfy their reporting requirements.

To read the regulation, click here.

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