Late February 1099-B Mailings Will Compress Tax Season for Many

Some brokerage customers of Fidelity Investments won’t receive Forms 1099-B until after the newly extended Feb. 17 general deadline for sending out the information returns, the company said Thursday.


Fidelity, the nation’s largest mutual fund company, asked for and received from the IRS an additional extension to the end of February, said company spokesman Steve Austin. The company intends to send most Forms 1099-B before the Feb. 17 deadline. However, a “small percentage” of customers may not get them until later in the month, Austin said.


“The bad news is that for many of our members this development could further shorten an already compressed busy season by almost two weeks,” said Tom Ochsenschlager, AICPA Tax Division vice president.


Until this year, the deadline for sending Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, was Jan. 31, the same as for Form W-2 and other information reporting forms. Congress extended the deadline to Feb. 15 in the Emergency Economic Stabilization Act of 2008, which also will require brokers to report the cost basis of securities sold, effective in phases starting in 2011. Because Feb. 15 falls on a Sunday this year and the next day is a holiday, the IRS further extended the normal mailing date to Feb. 17.


Tax practitioners have noted that the statutory extension could have the effect of compressing more return preparation into later in the filing season, although those contacted said they didn’t expect to see an effect from the extra extension granted Fidelity. 


It was unclear how many other brokerages, if any, have received an additional extension. An IRS spokesman was unable to provide a number Thursday. In January 2007, five large brokerage firms—Merrill Lynch, Morgan Stanley, Wachovia Securities, Edward Jones and Raymond James—received an extra month’s extension for 2006 forms. Failure to file a required information return on time can result in a penalty under IRC § 6721 of $50 for each return, up to a total of $250,000. Issuers may obtain an automatic 30-day extension for filing the forms with the government by submitting a completed Form 8809 and may request an extension of up to 30 days for providing copies to taxpayers by submitting a written request to the IRS.


In Notice 2009-11 and last week in a news release, the IRS said the Feb. 17 date applies to other tax information that brokers report with 1099-B securities information on a consolidated year-end form, including interest and dividends. It noted the Feb. 15 deadline was recommended by a federal advisory committee that had reported that many brokers issued revised forms for 20% of their clients.


Some tax practitioners agreed that better accuracy might be worth the wait.


“It will hold up preparation or completion of returns until March,” said Kip Dellinger, senior tax partner at Kallman and Co. LLP in Los Angeles. “But the bigger problem in the past and prospectively is the flow of amended and revised 1099-Bs that goes on for months.”


Trust returns, with their limit of 65 days from year-end to elect under section 663(b) that a current-year distribution be regarded as coming from the prior year’s distributable net income, might also be pressed for time by the extension. They also have only 65 days to decide whether to file Form 1041-T to allocate the trust’s estimated tax payments to the beneficiaries. This year, that date falls on March 6, less than a week after Fidelity’s extended due date. Still, distributions can be affected by many other factors, Dellinger said.


“Good planning can insulate a trust from problems in this area, albeit knowing the income is useful,” Dellinger said.


Justin Ransome, a partner in private wealth services at Grant Thornton in Washington, D.C., agreed.


“I can’t tell you from my experience that trustees rely upon 1099s to determine what they’re going to distribute,” he said.


For individual returns, the main force compressing tax season is likely to remain simple taxpayer procrastination, Ransome said.


“Even though tax preparers harp upon getting information in as soon as possible, taxpayers never get it to you until two or three days before it’s due,” he said.

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