Friday, October 29, 2010


It appears that two items of tax importance happened during my recent GDE “hiatus” about which I did not comment.

1) The IRS has decided not to send out 1040 or 1040A packages (instructions and forms) to any taxpayers anymore. Period.

In the beginning every taxpayer who filed a tax return in the previous year would get in the mail in January a tax form and instruction booklet based on what forms and schedules they filed in the prior year. The booklet would be addressed for mailing via a “peel and stick” label that contained the taxpayer(s)’s name(s) and Social Security number(s). This label would be attached to the top of the paper 1040 or 1040A that was filed.

As a point of information, I believed that certain historical information was “buried” somewhere in code on this label – and would not use the IRS label on the taxpayer’s return if the taxpayer, or spouse, had experienced problems with the IRS in the past.

At some point in time the IRS realized that it was not a good idea to include the taxpayer(s)’s Social Security numbers on the address label for the whole world to see and steal – so these numbers were removed from the label. And eventually the label was placed inside the booklet and not used as the actual address for mailing.

And many years ago now, I forget when, the IRS decided to stop sending 1040 and 1040A booklets to taxpayers who had used a paid tax preparer in the previous tax year – or at least for those taxpayers whose prior year return was signed by a paid preparer. It was now up to me, as preparer, to acquire the necessary forms and schedules. By this time computer generated returns were becoming more the “norm” for professional tax preparers (except for me and my mentor) – and the software package would generate the appropriate forms. However, taxpayers who “self-prepared” continued to receive the appropriate booklet in the mail each year.

At the beginning of my career, when I was a true “apprentice” (in the early 1970s), my boss would send me with an empty suitcase to a government warehouse in Newark that was chock-a-block full of all tax forms and schedules and I would return to the office with a full suitcase.

Once I went out on my own, while I did rely on the forms and schedules in the booklets received by clients, I would also make frequent runs to the local IRS office to grab handfuls of forms and schedules (when the IRS clerks were not looking) and also stock up on 1040s, 1040As, and Schedule A/Bs from what was left out for the public at local Post Offices. I have continued to make my IRS and PO runs frequently during each tax season – and hope I will be able to do so again in the upcoming tax filing season.

I sincerely hope that the new IRS policy of not sending out tax form and instruction booklets to individual “self-filing” taxpayers does not carry over to affect the policy of making forms available at Post Offices and IRS offices.

2) The IRS has “issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS.” (note – the highlights are mine)

Beginning with the 2011 Form 1099-B, which will be mailed to taxpayers during the first three months of 2012, will indicate the date of purchase and cost basis on all investment sales.

This is a wonderful new rule – one that will eventually save a lot of time for tax professionals during the filing season, when time is most precious.

Unfortunately it will take many years before the 1099-B will truly be able to report the cost basis information for all investment sales for the year. The law requires tax basis information to be stored and recorded beginning with 2011 purchases. So if a taxpayer sells a stock he purchased in 2009, or 1983, on his 2012, or 2020, Schedule D the information will very probably not be included on the 1099B, and the brokerage house will not have the information in its system.

Currently, and thankfully, many brokerage houses already provide a profit and loss analysis in the Consolidated Form 1099 reporting package – although this information is currently not sent to the IRS. For the most part, this information is only complete if the purchase was made through the reporting brokerage house, and will not include purchases made while the taxpayer was a client of a different house – unless the broker has brought the client with him from his former employer to his new one and has provided the information to the new employer.

And what about cost basis for inherited or gifted stock – which the taxpayer did not actually purchase?

As I have only 10 years left before I retire (the current plan) I expect that I will still need to chase down cost basis for some sales as long as I am in business.


1 comment:

Peter Reilly said...

I really admire your sticking to your manual preparation guns. We used to have a set of shelves with the most commonly used forms. Since I sat next to it part of my unofficial job was to memorize all the form numbers because there would always be somebody standing next to me muttering "What's the Form number for sale or residence or something like that ?"