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IRS Cost Basis Reporting


Phase III planning begins now

Mobilizing for cost basis reporting requires taking into consideration three key aspects of the broker operations: identification of impacted businesses; segmentation and profiling of clients in each of these businesses; and executing the necessary updates that need to be made to processes and systems impacted by the rule. Many organizations completed the first two steps in preparation for the first compliance date of 1/1/2011, and made significant progress toward the third.


  • IRC § 6045(g) had broad implications across the organization and needed to be managed to successfully to comply with the requirements of the Act and to successfully transition clients, financial advisors, and support teams to a new interaction model. Processing transfer statements in a timely manner was an area of concern for many organizations.
  • In October 2010, the IRS provided temporary penalty relief on issuance of transfer statements. Organizations must now restart the efforts to develop functionality and update procedures to process both incoming and outgoing transfer statements.
  • While brokers implemented a cost basis calculator prior to the first effective date, in many cases, the testing process was truncated in order to complete implementation.
  • While completing the implementation and testing of changes required for the 2011 requirements, organizations also need to mobilize for the specific requirements of the 2012 effective date, which impact, among others, regulated investment companies and dividend reinvestment plans.
  • Effective communication to and participation from stakeholders in the impacted areas continues to be necessary to effectively identify and document gaps and requirements. Leveraging subject matter specialists (e.g. operations, technology, distribution, and tax) is critical to provide clarity and cohesion across the requirement set.

Phase III planning must begin immediately 

Phase III regulations were issued in proposed form in November 2011 and will include options and debt instruments as covered securities starting in January 2013. Due to the complex nature of both the newly covered products and the proposed regulations, we believe Phase III will be the most challenging of the three phases and will require significant upfront planning during 2012. Through recent analysis


  • The newly covered securities (options and debt instruments) are extremely complex and will require deep subject matter knowledge. 
  • The ability for vendors to successfully develop and deliver required functionality for multiple clients will be difficult.
  • The availability of resources to initiate Phase III while addressing residual Phase I and II work will need to be planned.
  • It is anticipated that the final regulations will be released relatively late (mid-2012?) and leave little time for redesign.

Cost basis will permeate all departments of your organization, not just tax 

Cost basis presents a major impact throughout all aspects of organizations, including operations, technology, reporting, front-office, and of course, tax. There must be a cohesive work plan amongst all these groups in order to effectively implement the cost basis requirements. Anticipate major business process changes throughout the organization in order to be in compliance.

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