Cost Basis Reporting by Brokerages

Vanguard Brokerage Services says "the IRS has introduced regulations that require investment companies to report cost-basis information for certain types of investments held in nonretirement accounts." I believe the cost-basis information reporting for any investment will be triggered by the sale of that investment.

Where can one find more details on the IRS requirements.

I am interested in whether MLPs are one of the investments for which reporting is required. Also, Vanguard says it will offer only 2 options for reporting cost basis - FIFO or Specific Lot Identification. Apparently no Average Cost. Does the IRS no longer allow Average Cost, or is this a limitation applied by Vanguard.

Any and all information will be appreciated.

Reply to
BobLeavitt
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require investment companies to report cost-basis information for certain types of investments held in nonretirement accounts." I believe the cost-basis information reporting for any investment will be triggered by the sale of that investment.

is required. Also, Vanguard says it will offer only 2 options for reporting cost basis - FIFO or Specific Lot Identification. Apparently no Average Cost. Does the IRS no longer allow Average Cost, or is this a limitation applied by Vanguard.

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Reply to
Alan

Vanguard Brokerage Services says "the IRS has introduced regulations that require investment companies to report cost-basis information for certain types of investments held in nonretirement accounts." I believe the cost-basis information reporting for any investment will be triggered by the sale of that investment.

Where can one find more details on the IRS requirements.

I am interested in whether MLPs are one of the investments for which reporting is required. Also, Vanguard says it will offer only 2 options for reporting cost basis - FIFO or Specific Lot Identification. Apparently no Average Cost. Does the IRS no longer allow Average Cost, or is this a limitation applied by Vanguard. Any and all information will be appreciated.

-- I have a similar concern. I had several MLPs in my IRA and later realized that UBIT could make the income taxable within the IRA if the income exceeded $ 1000 in the IRA. So, as part of my Required distribution, I transferred the one paying the largest dividend. My concern is that it was reported as a taxable withdrawal based on the value on the date transferred, but the broker showed the cost in my taxable account at the original cost which was a lot less than when transferred. If I later sell it, I would want the basis to be the amount of the taxable distribution which already includes the tax on the gain in value.

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Reply to
X

If you like you can ask the broker to correct its records, but whether they do or not, your basis is what the law says it is, not what the

1099-B says it is. That's why it's so important for people to continue to keep their own records.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

On an in-kind RMD or other IRA distribution, is it too much to expect the Broker to assign the distribution value (which is exactly what they have to report for tax purposes that year) as the new cost basis? If not, seems this law, the new requirement for basis reporting, isn't as useful as it should be.

Reply to
JoeTaxpayer

Is there any such thing as an "in-kind" IRA distribution? Sure, it might *seem* that way, but aren't so-called "in-kind" distributions formally a distribution of cash and an immediate repurchase of the security? If so, having the proper basis reported should trivially follow.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Reply to
Rich Carreiro

Rich - I'd have to say "no." Stocks contained within an IRA can be distributed, claimed as income, and the shares are now in the taxable account. This isn't a sell/buy. My broker has never tried to charge a trade cost for this. And a sell/buy would cost a buyer the bid/ask spread as well, no?

I have no idea how common this is, but in-kind distributions where basis isn't bumped up to distribution date would be an ongoing issue, I'd imagine. (once the reporting requirement is in effect)

Reply to
JoeTaxpayer

I don't believe there's any requirement to go to the market. The broker could simply have a policy of doing the sell and repurchase at whatever price was used to value the amount of the distribution (obviously some price must be used in order to come up with the dollar amount to report on the 1099-R).

I know from many discussions right here in m.t.m that IRA contributions (and I believe roll-ins, too) can only be made in cash (per the IRC and regs), so to the extent any broker allows "in-kind" contributions they are (behind the scenes) actually structured as a sale, a cash contribution, and a purchase, all done instantaneously of course. It wouldn't surprise me if IRA distributions also have to be formally made in cash. But now I'm curious...are IRA distributions limited to cash the way IRA contributions are?

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Reply to
Rich Carreiro

I can be completely out to lunch on this, but I thought I understood it. A pure deposit is cash only. A transfer or Roth conversion is done with no sell. I never heard of the broker enabling it to look in-kind while actually doing a sell/buy. This matter is just one more issue to be aware of when offering advice. Strange stuff.

Reply to
JoeTaxpayer

But now I'm curious...are IRA distributions

==============I have taken in-kind transfers from my IRA to my margin account. I do not sell shares then repurchase them. I pay no commission when I transfer 100 shares of GE from my IRA to my margin account. The broker just transfers them and removes 100 shares from the IRA and counts it as a distribution at the price at the time of the transfer.

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Reply to
X

Based on discussion here a while back, that would seem to be a prohibited transaction.

Seth

Reply to
Seth

Evidently it is too much to expect from this particular broker. Or maybe what the broker is showing isn't tax basis but "investment" basis. We should keep in mind that the traditional reason for this information in brokerage records is to help the customer track ROI. Thus it would make sense for them to carry the cost over from the IRA to the taxable account. Since the 1099-B basis reporting isn't in effect yet we don't know what the brokerage plans to do in the future, but I'd certainly inquire.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

Contributions must be cash. Everything else, including rollovers, conversions, recharacterizations, and distributions can be any property already in a retirement account. I couldn't find it quickly in Pub 590 (one of my least favorite pubs), but its hinted at in "Basis of distributed property" on page 64.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

is required.

From what I know from my account with Schwab, they already track the cost of MLP's. However, selling an MLP is not only reporting the capital gain on Schedule D.

If you sell an MLP, you will get a "Sales Schedule" from the MLP in addition to the 1099 from the broker. The "Sales Schedule" will show you (1) how much of the gain is reported as a capital gain on Schedule D and (2) how much is reported as ordinary gain as reported on Form 4797. The ordinary gain amount ends up as Income on line 14 of Form 1040.

The point here is that you will owe tax on the distributions that you received in the past but were exempted from paying tax at that time because of the MLP status of the investment. If you sell, you will now owe tax on those distributions.

That is how it worked for me prior to 2011. Presumably that won't change. If I don't have that right, I hope someone will jump in and correct me if I am wrong. I am not a tax preparer, EA, CPA, etc.

For a more detailed discussion of this issue prior to 2011, see

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Reply to
NJOracle

I just executed the transaction discussed in this thread. An inherited IRA, with an RMD exceeeding the cash available.

The Form was clear to offer the distribution of securities for the RMD. The transaction request was faxed and completed outside of market hours.

The non-retirement account that received the shares reflects a cost basis of the day's closing price and an acquired date reflecting the date of distribution. The history log for both accounts show a 'type: journal' transfer. I understand you're suggesting something more may have occurred in the back room, but from where I sit, it was a smooth in-kind distribution.

As I see it, the value of this is two fold, avoiding the buy/sell, saving both the 2 commissions and the bid/ask spread, and the 'feeling' that RMDs are such an awful thing. Of course the tax is due, but the in-kind distribution separates the discussion of "do I really want to hold this stock, or should I just sell it and take the cash?" My preference is to isolate that to a time when rebalancing is the issue.

Reply to
JoeTaxpayer

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