IRS Delays Options, Debt Instrument Basis Reporting

The Internal Revenue Service is delaying a requirement that brokers report their customers’ cost basis in options and debt instruments.

The decision was made in response to requests from brokers and custodial banks including the Bank of New York Mellon Corp. (BK), State Street Corp. (STT) and Northern Trust Corp. (NTRS)

The rules will be delayed one year and will take effect for options granted or acquired or debt instruments purchased beginning in 2014, the IRS said today.

In a Jan. 31 letter, BNY Mellon, State Street and Northern Trust asked the U.S. government to delay the effective date for debt until 2015 and for options until 2014.

“Due to the substantial complexities associated with obtaining adequate data, developing compliant systems and perfecting the ability to make cost basis adjustments for debt instruments and options, we believe that Treasury should exercise its authority to delay implementation,” they wrote.

The American Bankers Association, the Securities Industry and Financial Markets Association and Janney Montgomery Scott LLC were among other organizations requesting a delay.

Reporting Taxable Profits

Congress created the cost basis requirement in 2008 in the same law that authorized the Troubled Asset Relief Program. It is designed to make sure that taxpayers don’t overstate their basis and thus underreport taxable profits.

The requirement is part of the government’s effort to reduce the estimated $385 billion annual net gap between taxes owed and taxes paid. When enacted, the provision was estimated to raise $6.7 billion over a decade, according to the congressional Joint Committee on Taxation.

The rules took effect for stocks purchased and sold in 2011, and taxpayers filing returns this year encountered new forms and instructions. The basis-reporting regime expands in 2012 to cover mutual funds and many exchange-traded funds.

Susan Rivers, a spokeswoman for BNY Mellon, declined to comment.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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