GainsKeeper Blog

IRS grants one-year delay in cost basis reporting for debt and options

By Stevie D. Conlon, Senior Director &Tax Counsel,Wolters Kluwer Financial Services

WALTHAM, Mass. – May. 02, 2012 – On May 2, 2012, the IRS issued Notice 2012-34 announcing that the IRS intends to delay the effective date for debt and option basis reporting for one year, from the initial proposed date of January 1, 2013 to January 1, 2014. According to the Notice, the debt and option reporting regulations, when final, will not apply to debt instruments acquired before January 1, 2014 or to options granted or acquired before January 1, 2014.

Proposed regulations for debt and option reporting were published November 25, 2011. Comments on the proposed regulations were received by the IRS from brokers and other interested industry representatives, including Wolters Kluwer Financial Services, and a public hearing regarding the proposed regulations was held on March 16, 2012. Many commentators requested a delay in the effective date of cost basis reporting rules for debt and options for at least one year or more. Copies of the comment letters are available at www.costbasisreporting.com.

In the notice, Treasury and the IRS acknowledged the numerous requests for delay, noting that "brokers and other interested parties maintain that [January 1, 2013] does not provide them sufficient time to build and test the systems required to implement the reporting rules for debt instruments and options." After "consideration of the comments and testimony", the "rules in the proposed regulations when finalized will not apply until January 1, 2014," according to the notice.

This delay does not diminish the challenges of implementing systems for debt and option reporting, given the current wide scope of the proposed regulations, as well as the necessary time required by brokers to test cost basis systems enhanced for debt and options cost basis reporting. However, it will allow additional time for the brokerage industry to prepare and to respond to the scope of reporting and requirements ultimately contained in the final regulations.

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