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Cost-Basis Reporting Redux

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January 29, 2013 | Barbara Baksa

Cost-Basis Reporting Redux

As my readers know, cost-basis reporting went into effect last year for Forms 1099-B.  This resulted in a number of changes to Form 1099-B, introduced Form 8949 to the stock plan administration lexicon, and created a whole new "opportunity" for employee education.

If you were thinking we were done with this topic--think again!  This year, the IRS has further revised Form 1099-B and also changed Form 8949--finally issuing instructions to the new Form 8949 just last week.  Any educational materials you may have created last year will likely need to be updated. The examples, FAQs, and flow charts in the NASPP's Cost Basis Portal have all been updated for the new forms and instructions (now you know what I did this weekend).

Here is a quick summary of what's new.

Changes to Form 1099-B

  • New boxes 1d and 1e report the stock symbol and number of shares sold. There is still a description box (now box 8, formerly box 9 in 2011) where this information also appears. 
  • Former box 2 (sales price) is now box 2a. This makes room for new box 2b, which has something to do with losses that are disallowed for reasons I don't understand. Something about acquisitions/changes in corporate structure and foreign corporations--I'm pretty sure it doesn't have anything to with stock compensation.
  • Former box 8 (short- or long-term gain) is now box 1c.
  • Box 6 now has two checkboxes: a) for noncovered securities, and b) indicates that the basis was reported to the IRS.  Presumably the IRS can figure out whether or not the basis was reported to them, so I assume that box 6b is there to confirm for employees (and their tax preparers) that the basis was (or was not) reported to the IRS (e.g., if the broker reported the basis on the substitute Form 1099-B issued to the employee but didn't report the basis to the IRS, box 6b would not be checked).
  • A bunch of other boxes that I don't care about were renumbered.

Changes to Form 8949

  • Former column (b) (adjustment code) is now column (f). This also means that former columns (c) through (f) have all shifted to the left and are now columns (b) through (e).  I guess it makes sense to have the adjustment code next to the adjustment column, but I do kinda wish the IRS had thought of this when they first created the form--it took a long time to update all the column references. 
  • New column (h) now shows the taxpayer's gain or loss for each transaction. Last year, gains/losses were only shown in aggregate on Schedule D.
  • Where the cost basis is reported to the IRS, new code "E" is entered in column (f) when the transaction fees are not reflected in either the sale proceeds or the cost basis reported on Form 1099-B (an adjustment in the amount of the fees is also entered in column (g)).
  • If the employee's copy of Form 1099-B (or substitute) reports an incorrect basis and that basis was not reported to the IRS (indicated in new box 6b of Form 1099-B), the employee should report the correct basis in column (e) of Form 8949 but should also report code "B" in column (f), even though no adjustment will be entered in column (g). I'm not sure why the IRS wants taxpayers to enter an adjustment code when there's no adjustment. It's the IRS; go figure...
  • If multiple codes are entered in column (f), they should not be separated by a space or comma.  Last year, they were supposed to be separated by a space or comma.  Seriously?  Ok, now it seems like the IRS is just changing things to change them--that's just rude.

Some Things You Can Still Count On

The good news is that there have been no changes to Forms 3921 and 3922 (or maybe that's bad news if there's something you were hoping the IRS would change about them).  Also, tax preference income for ISO exercises is still reported on line 14 of Form 6251 (for all I know, the whole rest of Form 6251 has changed, but at least line 14 is still the same). I feel a little better now.

A Great Resource for Employees

A shout-out to Bruce Brumberg of myStockOptions.com for letting me know that the IRS had issued new instructions to Form 8949 and for giving me a quick run-down of the changes. If your employees have questions about the tax treatment of their stock compensation, myStockOptions.com is a great resource for them. The myStockOptions Tax Center has oodles of resources on reporting stock plan transactions on tax returns, even a free video on this topic. 

- Barbara

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