October 18, 2010: Treasury Issues Final Stock Basis Reporting Guidance
Treasury Issues Final Stock Basis Reporting Guidance Global FATCA Development
On October 3, 2008, Congress expanded the scope of the broker reporting obligations on Form 1099-B to require brokers to report the adjusted cost basis of securities sold and whether any gain or loss with respect to the security is short-term or long-term. The legislation applies to certain “covered securities” and will be phased in gradually over a three year period beginning in 2011.
The December 2009 proposed regulations expanded the definition of broker to include non-U.S. payors and non-U.S. middlemen which were foreign qualified intermediaries. However, the final regulations released October 12th do not adopt the proposed changes to the definition of broker. Thus, non-US payors and non-US middlemen which are foreign qualified intermediaries will not be treated as brokers with respect to sales effected at an office outside the United States. Nonqualified intermediaries are not exempt from basis reporting.
In addition, the Treasury Department noted that the recently enacted FATCA provisions, which provide for extensive withholding and reporting by non-US entities, will be used to encompass certain of the broker reporting requirements. So for example, to the extent that a foreign financial institution has entered into an agreement with the IRS pursuant to the FATCA rules, it is anticipated that the agreement would specify the institution’s reporting obligations under the broker reporting rules.