7519 / What are the basis reporting rules that became effective in 2011? To which types of securities do the new rules apply?

Under current law, brokers are required to file annual information returns with the IRS showing the gross proceeds realized by customers from various sales transactions.¹ Under EIEA 2008, new requirements were enacted with respect to the reporting of a customer’s basis in securities,² and rules were put in place for determining the basis of certain securities subject to the new reporting requirements.³ The reporting requirements and basis rules generally took effect on January 1, 2011.⁴ Final regulations were released in October 2010.⁵

Under Section 6045(g), every broker that is required to file a return from the sale of a “covered security” must now include in the return (1) the customer’s adjusted basis, and (2) whether any gain or loss with respect to the security is long-term or short-term.⁶

A “covered security” is any “specified security” acquired on or after the “applicable date” if the security was (1) acquired through a transaction in the account of which the security was held, or (2) transferred to that account from an account in which the security was a covered security (but only if the transferee broker received a statement under Section 6045A).⁷

A “specified security” is: (1) any share of stock in a corporation (including stock of a mutual fund); (2) any note, bond, debenture, or other evidence of indebtedness; (3) any commodity, or a contract or a derivative with respect to the commodity (if the Treasury Secretary determines that adjusted basis reporting is appropriate); or (4) any other financial instrument with respect to which the Treasury Secretary determines that adjusted basis reporting is appropriate.⁸