GainsKeeper Blog

Cost Basis Reporting Legislation Close to Becoming Law

February 19, 2008

In late November and early December 2007, the House of Representatives passed two separate bills (H.R. 3996, the Temporary Tax Relief Act of 2007 and H.R. 6, the Clean Renewable Energy and Conservation Tax Act of 2007) that included cost basis reporting legislation. However, because of other provisions in these bills, they were not passed by the Senate and did not become law last year.

There are significant indications that cost basis reporting legislation is close to becoming law. Its passage by the House late in 2007 is one. Also, it does not appear that the cost basis reporting proposal had anything to do with the Senate’s failure to pass the two bills that included it. In fact, it’s likely that on its own, the cost basis legislation would have been approved by the Senate. Note that cost basis reporting was originally proposed in the Senate and both the Chairman of the Senate Finance Committee and the ranking Republican on the committee are in favor of the legislation. Another factor is that cost basis reporting is again included in the president’s budget for the upcoming fiscal year that was released on February 4, 2008. This suggests that if the cost basis proposal is passed by both the House and Senate, the president will likely sign it and it will become law.

On February 6, 2008, The Wall Street Journal published an article on the cost basis reporting legislation. According to tax policy consultants quoted in the article, “Congress is highly likely to pass a basis-reporting bill this year” and “...it is extremely likely to be included in some tax bill this year.” GainsKeeper has been actively tracking the legislation and the view that cost basis reporting is on the cusp of becoming law soon is consistent with our insights—now that the tax stimulus legislation has passed, any tax bill for 2008 will likely include cost basis reporting and its chances of becoming law in 2008 are high.

If a law is passed this year, one troubling aspect is that brokers may have relatively little time to prepare their data systems and information return processing due to the proposed effective date. The cost basis reporting legislation passed by the House would have been effective for stock acquired on or after January 1, 2009 and certain other securities such as bonds, notes and other forms of debts, as well as certain other transactions acquired or occurring two years later (January 1, 2011).

Cost basis reporting legislation would generally require brokers to report to the IRS and taxpayers the adjusted basis of stocks and certain securities (such as bonds, notes, debentures or other evidences of indebtedness, as well as certain other transactions). Cost basis information would be included by modifying the existing Form 1099-B gross proceeds reporting rules. Several bills were previously introduced proposing cost basis reporting and prior GainsKeeper Blog postings—one in March 2007, and another in June 2007—addressed these.

Stevie

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