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IRS Favorably Clarifies New February Deadline for Broker Delivery of Form 1099 Information to Customers
Why Investors May Not Receive Their Form 1099 Information from Their Brokers Until February 17 This Year
January 13, 2009

On Monday, Jan. 12, 2009, the IRS issued Notice 2009-11, which addresses an important aspect of the new cost basis reporting law enacted in October 2008—the new deadline for the delivery of Form 1099-B by brokers to customers. The cost basis reporting law includes a provision that changed the delivery due date for information returns relating to gross proceeds reporting by brokers from Jan. 31 to Feb.15 (or the next business day if such days are on weekends or holidays).

This change was widely anticipated, and although many provisions of the cost basis reporting law do not become effective for several years, this change was effective for information returns due this year (2009). One point of consternation relating to this change was that it does not generally apply to other types of Form 1099s, such as Form 1099-INT (for interest payments), Form 1099-DIV (for dividend payments), etc.

Brokers often provide customers with a single consolidated reporting statement that includes the required information that would be provided on various different types of Form 1099 (including Form 1099-B, Form 1099-DIV, Form 1099-INT, etc.). The new cost basis law includes a provision that extends the customer delivery deadline for such a consolidated reporting statement from Jan. 31 to Feb.15. Unfortunately, the new law provided that the term "consolidated reporting statement" for this purpose would be defined in IRS regulations and there were uncertainties regarding whether the new Feb. 15 deadline was available. Because the law was enacted so recently and the issuance of IRS regulations can easily take several years, brokers needed interim guidance from the IRS to address uncertainties regarding the availability of this new due date. One reason for brokers' unease regarding this issue was that Section 6722 of the Internal Revenue Code imposes tax penalties on persons that provide payees with incorrect or late Form 1099s.

For example, assume a broker provides a consolidated reporting statement to its customers. One customer's statement reports interest, dividends and sales of stocks and securities. Another customer's statement only reports interest and dividends because he or she did not sell any securities during the year. Brokers were concerned that the new rule could be interpreted as requiring the first customer's statement to be delivered by Feb.15 and the second customer's statement to be delivered by Jan. 31. Such an interpretation would make things very difficult for brokers and could create computer system, report generation, review and mailing complexities. In the simplest terms, such an approach could cause brokers and their related vendors to repeat the processes and essentially double the amount of work they would need to undertake each year in processing and delivering such statements to their customers.

In early November the IRS posted a reminder inferring a potentially narrow interpretation of the consolidated reporting statement rule on its Web site that raised concerns in the brokerage and mutual fund communities. Notice 2009-11 provides important relief and would permit a broker to take advantage of the new Feb. 15 deadline (Feb. 17 is the actual deadline this year because Feb. 15 is a Sunday and the Feb.16 is a holiday) for all of its customers (both customers in the example set forth above) if it provides them with consolidated information statements. The key sentence in the Notice is "such reporting entities have until February 17, 2009, to report all items that they customarily report on these annual composite form recipient statements to all customers whether or not each customer's transactional history for 2008 triggered an obligation to furnish Form 1099-B to that particular customer." Importantly, the Notice provides that penalties under Section 6722 would not apply in such a case. The Notice also provides a cross-reference defining a consolidated statement for this purpose as set forth in Section 4.2 of Rev. Proc. 2008- 36. The Notice modifies the instructions for the related Form 1099s (and other related forms) for the 2008 tax year. The Notice does not by its terms relate to future tax years. Presumably the IRS will issue additional guidance in the near term.


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