Botched 1099-B cost-basis reporting: The List

Beware Botched 1099-Bs, Form 8949 At Tax Time
http://www.forbes.com/sites/greatsp...beware-botched-1099-bs-form-8949-at-tax-time/

Besides my Forbes blog above and interview in WSJ this past Sat, my partner Darren Neuschwander, CPA and I had a long interview today with Theresa Carey of Barron's. Ms. Carey writes the popular Electronic Investor column, and she just had the cover story this past week with her Annual Online Broker Review and Ratings.

Our firm and some leading accounting industry groups want the IRS to back down on matching cost-basis reporting on the new beefed-up 1099s. New IRS Form 8949s are turning out to be a huge mess with large discrepancies in trying to reconcile correct trade accounting with botched 1099-B reporting.

Mr. Neuschwander, CPA points out that it's like the prior controversy with the IRS over new 1099-K rules for reporting credit-card transactions. Due to blow back from the credit card and retailing industries, the IRS back tracked and said they would not match the 1099-Ks issued to tax returns. This will prevent an avalanche of inappropriate tax notices, alleging errors where none exist. That would otherwise be very disruptive to taxpayers. We want the same industry and media blow back, and back tracking from the IRS over their new 1099-Bs and Form 8949.

It’s unfair to blame this mess on the brokers alone. The IRS was very late in communicating the new rules and they never even told the brokers about the details of Form 8949, with the different parts for covered versus non-covered, and Parts A, B and C. The IRS did not require standardized reporting and they should. So, traders with different brokerage accounts are seeing very different applications, and that further confuses the issues.

There are two types of problems. Wash sales are very botched and brokers should have gotten that much better. Even when wash sales are reported properly by a broker – which is not the case from what we see so far - it’s not 100% correct, because wash sale analysis must be done across all your brokerage accounts, including IRAs. We are concerned that many unsuspecting taxpayers may over pay their taxes based on broker-reported wash sales that are not correct.

The second problem is botched 1099-Bs and discrepancies on Form 8949. If the IRS turns off the matching program, then I am less concerned with that problem. We need the brokerage industry and media’s help in getting this relief from the IRS. If we blame this all on brokers, they may go into their shell, and not help us as taxpayers and tax preparers. Our goal is to turn off the IRS computers on this matching, and to prevent the IRS from sending out TP-2000 notices to millions of taxpayers over 1099-B and Form 8949 matching errors.

For sure, plan to file valid extensions, and let the dust settle on this huge mess, first. You don’t want a refund that you later have to repay the IRS with interest and taxes, after a broker corrects a Form 1099-B later this year. You also don’t want to pay taxes now that you don’t owe. Plus, you don’t want to dance this crazy dance on reconciling with botched 1099-Bs, when we expect brokers to fess up and fix this mess later on, too.
 
I notice Pub-550 states that if a short position is held under 45 days, and the short-seller had to make a payment in lieu of a dividend, then the short-seller must increase the basis of the stock used to close the short-sale (instead of being able to deduct the payment as an investment expense)

I wonder how many brokers are actually correctly handling the above situation?
 
Quote from Robert A. Green:

Beware Botched 1099-Bs, Form 8949 At Tax Time
http://www.forbes.com/sites/greatsp...beware-botched-1099-bs-form-8949-at-tax-time/

Besides my Forbes blog above and interview in WSJ this past Sat, my partner Darren Neuschwander, CPA and I had a long interview today with Theresa Carey of Barron's. Ms. Carey writes the popular Electronic Investor column, and she just had the cover story this past week with her Annual Online Broker Review and Ratings.
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Bob, thanks for all the info over the years. I wish Baron would start, and let you sponsor, a "Trader's Tax Forum" here at ET, without making you pay a sponsor fee. It is, unfortunately, an important subject and generally a huge pain for traders.

Maybe if all links to your blog or services were removed, Baron would go for it? Sort of as a public service? :)

Regards and good trading to all.
 
I've received new 1099-B from Penson this year that has a large number in the 'Wash Sale Loss Disallowed' column. Can someone please tell me when I am actually allowed to take this loss?
 
Quote from et_user:

IB includes SPY and MDY as covered securities though they are ETFs. So, in tradelog software, I changed the type to stocks for these ETFs and able to match covered securities gross proceeds with IB. Also, EVEP is under uncovered securities in my 1099-B thought it is not ETF.

Lesson, look at 1099-B and get a list of all symbols for both covered and uncovered securities and then match with tax software to get the gross sales proceeds correct for each category. Do not assume all stocks are covered securities and also do not assume all ETFs are uncovered securities.

Thanks Mr. Green for your contributions.
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Hi et_user,

I'm using TradeLog and IB and the discrepancy amount roughly equals the amount IB classifies as non-covered in the 1099b form.

How do you classify an entry in tradelog so that it not included in the covered amount?
 
Webinar Invitation: Join us for "Learn How To Use TradeLog to Deal with Cost-Basis Reporting Problems on 2011 Tax Returs" on March 20, Tuesday @ 1:00pm ET. https://www1.gotomeeting.com/register/521587681
We will thank Elite Trader on the Webinar for spreading the word on these threads, and give a special warm welcome to Elite Trader users.

Learn How To Use TradeLog to Deal with Cost-Basis Reporting Problems on 2011 Tax Returns

Join CPAs Robert Green and Darren Neuschwander, Managing Members of Green NFH, LLC, and Jason Derbyshire of TradeLog.
In this Webinar:
• Derbyshire will give a demonstration of the new version of TradeLog built to deal with Form 8949.
• Green and Neuschwander will discuss how to deal with 1099-B discrepancies.
• Green and Neuschwander will demonstrate how to prepare valid tax return extensions.

The IRS cost-basis reporting rules apply to 2011 and brokers are struggling — in most cases, brokers’ 1099-Bs are wrong on proceeds, cost basis and wash sales. The new rules require reconciliation with 1099-Bs on the controversial new tax form 8949. Taxpayers must now enter trades on Form 8949 instead of Schedule D.

Get a grip on 2011 trade accounting and tax reporting with TradeLog — its calculations are correct when used properly. TradeLog’s Form 8949 will likely show an adjustment for 1099-B reconciliation differences, and in many cases that discrepancy will be significant. If it’s material, traders should investigate the differences and discuss them with their brokers. In most cases, traders should request corrected 1099-Bs. We expect the IRS to match 1099-Bs to tax filings with Form 8949, so be prepared to receive an IRS notice about material differences.

For this reason, we suggest filing for automatic extension, and waiting for corrected 1099-Bs to be issued, hopefully before the extended tax return due date of Oct.15 for individuals, and Sept. 15 for partnerships and S-Corps.
 
Baywolf,

tradelog uses Type/Mult field to define it. STK-1 is covered. ETF-1 is uncovered. For example, SPY, change to STK-1 because though it is ETF, IB has put it under covered securities.

Hope, this helps.
 
Quote from gkishot:

I've received new 1099-B from Penson this year that has a large number in the 'Wash Sale Loss Disallowed' column. Can someone please tell me when I am actually allowed to take this loss?
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pub 550 pg 60 http://www.irs.gov/pub/irs-pdf/p550.pdf

if loss is disallowed because of wash sale rules you add the disallowed loss to the cost of the new securities...it gives a number of examples how to do this...go to irs.gov and type in pub 550 for the info
 
Quote from RichardRimes:

pub 550 pg 60 http://www.irs.gov/pub/irs-pdf/p550.pdf

if loss is disallowed because of wash sale rules you add the disallowed lossAnd to the cost of the new securities...it gives a number of examples how to do this...go to irs.gov and type in pub 550 for the info
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Penson reports total disallowed wash sales loss for the year to IRS. To what security should I add total wash sale loss? To all my transactions next year?
 
only if they are disposed of in 2012...THIS is how I understand it.

NOV 1, 2011 you buy(#1) 100 sh of APPL for $300. It tanks you sell @ $200 but within 30 days buy it back(buy #2) @ $150. You hold it until Feb 2012 at which point you sell at $400.

Your loss of $100 per share for 2011 is disallowed under wash sell rules. This $100 is then ADDED to your cost basis of buy #2...so that cost is $250 and not $150. Your gain in 2012 is then the difference between the gain of $400 and the new basis of $250 + of course transaction costs.


If disposition occurs in 2011 then its still the same. The loss is disallowed but the gain is minimized. If you have re-occuring multiple losses all disallowed...not really sure how THAT would work!!! I guess at some point you just have to hold it for more than 30 days to finally realize the loss.
 
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