Line Items


The IRS issued proposed regulations (REG-101896-09) in December relating to how securities brokers report sales to the IRS and how stock basis is determined. The regulations also proposed a Feb. 15 annual deadline for brokers to supply certain information statements. The proposed rules reflect changes made in 2008 by the Energy Improvement and Extension Act, PL 110-343.


Under IRC § 6045, as amended, brokers are required to report to the IRS their customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This requirement applies to any broker who is subject to the gross proceeds reporting requirements of section 6045(a) with respect to the sale of covered securities (as defined in section 6045(g)(3)(A)).


For most corporate stock, this reporting requirement will apply to any sale after Jan. 1, 2011. For regulated investment company or dividend reinvestment plan stock, the applicable date is Jan. 1, 2012. The information is reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. The IRS also released a draft revised version of the form.


The basis reported by a broker is generally the total amount paid by the customer, adjusted for commissions and the effects of other transactions occurring within the account. The proposed regulations contain detailed rules for determining the customer’s basis in the stock sold.


The proposed regulations clarify that when a customer sells less than the entire amount of a security held in an account, the selling broker must follow the customer’s instructions, if any, for adequately identifying the security sold. If applicable, the broker must follow a customer’s instruction that average basis be used to compute the basis of the stock.




The Court of Appeals for the Federal Circuit affirmed the holding of the Court of Federal Claims in CNG Transmission Management VEBA v. U.S. (docket no. 2009-5025, 12/14/09, aff’g, 84 Fed. Cl. 327, 10/21/08) that a voluntary employee benefit association (VEBA) could not avoid paying unrelated business tax (UBT) on its investment income in 2000 by allocating that income to benefits, because the income exceeded statutory limits for its exempt function. For previous discussion, see “Tax Matters: VEBA’s Excess Set-Aside Is UBI,” JofA, Jan. 09, page 66.


A VEBA’s exempt function income is limited under IRC §§ 512 and 419A to member contributions for benefits plus other income set aside in an account to pay benefits incurred but unpaid at the close of the tax year, plus administrative costs related to those claims. CNG admitted that its investment income would have caused it to exceed those limits except that it paid that amount in benefits during the tax year. The courts disagreed, with the Eighth Circuit saying the plain language of section 512(a)(3)(E)(i) prevented CNG’s interpretation. The statute states that a set-aside is valid only to the extent that it does not result in an excess of the account limit. The Eighth Circuit also rejected CNG’s argument that, because it spent all its investment income on member benefits, it had no income beyond the set-aside amount. “Money is fungible, and CNG cannot avoid taxation by claiming that it spent money from investment income, rather than money from some other source, on member benefits,” the Eighth Circuit said.




The IRS issued proposed regulations for required reporting of payment card and third-party network transactions. The requirement was enacted as IRC § 6050W in the Housing Assistance Tax Act of 2008, PL 110-289. Generally, starting Jan. 1, 2011, banks and similar transaction settlement organizations must file annual information returns for each participating merchant or other payee reporting aggregate gross receipts for the calendar year from credit and debit card sales or third-party network transactions. The requirement is intended to help substantiate businesses’ deductible expenses and gross sales receipts, the misreporting of which is thought to be a major component of the “tax gap.” The new statute requires each “payment settlement entity” to report the name, address and tax identification number of each participating payee to whom one or more payments in settlement of reportable payment transactions are made and the gross amount of such transactions for that payee. Payment intermediaries are treated as both participating payees and payment settlement entities with respect to determining reporting obligations and settlement of transactions with participating payees.


Electronic payment facilitators may also be required to file information returns where they make payments in settlement of reportable transactions on behalf of a payment settlement entity. Participating payees are generally any persons accepting a payment card or third-party settlement as payment. They include governmental units but not foreign persons. A de minimis exception is available to third-party settlement organizations for each participating payee with $20,000 or less in aggregate transaction amounts or 200 or fewer transactions. The proposed regulations did not adopt a recommendation made in several comments received in response to Notice 2009-19 suggesting that payment card transactions also be subject to a de minimis exception.


Under amended section 3406, such reportable amounts may be subject to backup withholding requirements after Dec. 31, 2011.


Under the proposed regulations, a stored-value or gift card is a payment card within the meaning of the requirement when it is accepted as payment by a person who is unrelated to the card’s issuer. Thus, for instance, a purchase at a college bookstore with a stored-value card issued to a student by a college or university would not be a reportable transaction where the store is owned by the university, but it would be if a restaurant unrelated to the college or university accepted it as payment.


Year-end tax planning and what’s new for 2016

Practitioners need to consider several tax planning opportunities to review with their clients before the end of the year. This report offers strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.


News quiz: Retirement planning, tax practice, and fraud risk

Recent reports focused on a survey that gauges the worries about retirement among CPA financial planners’ clients, a suit that affects tax practitioners, and a guide that offers advice on fraud risk. See how much you know with this short quiz.


Bolster your data defenses

As you weather the dog days of summer, it’s a good time to make sure your cybersecurity structure can stand up to the heat of external and internal threats. Here are six steps to help shore up your systems.