Tax planning this year is likely to be especially stressful in light of the new Internal Revenue Services rules for reporting the cost basis for securities an investor owns.

The rules require broker-dealers, mutual funds and transfer agents to accurately report and justify the original cost of securities to customers and the IRS, when sales are made.

The new requirements apply to stocks acquired on or after Jan. 1, 2011; mutual fund and shares in dividend reinvestment plans acquired on or after Jan. 1, 2012; and debt instruments and options acquired on or after Jan. 1, 2013.

However, because the final regulations were not released until October 2010 many firms are still identifying issues and raising questions regarding some of the details of the new rules, says Stevie Conlon, senior director and tax counsel for Wolters Kluwer Financial Services. At the very least, front-, middle -and back-office systems will need to be adjusted to accommodate the new rules - and at a pretty hefty cost.

Here is a rundown of five potential pitfalls in cost-basis reporting which Wolters Kluwer Financial Services says brokerage firms, mutual fund companies, transfer agents and even corporations should watch out for.

Register or login for access to this item and much more

All On Wall Street content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access