Securities investors face ugly IRS surprise
By RUSS WILES
By RUSS WILES
Active stock, option and mutual fund investors face a nasty surprise this tax season: tougher reporting rules that could make it more costly and laborious to prepare their personal income-tax returns.
The Internal Revenue Service has tightened its policy on how investors report capital gains and losses. Before, investors could list their summary gain or loss totals for the year and attach detailed brokerage statements.
But now investors or their tax-return preparers must spell out each trade on a separate line on IRS forms, even if they run into the hundreds or thousands.
The IRS cites the changes in its instructions for Schedule D, which covers gains and losses.
"I consider it a horrific problem," said Monica Stern, a certified public accountant in Phoenix. "I think it could add significantly to the cost of preparing returns for people with more than 10 or 12 trades."
The American Institute of Certified Public Accountants has complained to the IRS in a letter.
The new policy affects many types of investments, including stocks, bonds, mutual funds, options and even real estate, although frequent trading is most common with stocks and options.
Until now, the procedure has been for taxpayers to summarize their yearly gains or losses, make a "see attached" reference on their return and include a copy of their brokerage statement, said David Stahle, a senior financial adviser at Merrill Lynch in Mesa, Ariz.
But the IRS determined that wasn't sufficient.
"We weren't getting the required information from attachments in the past," said Bill Brunson, an IRS spokesman in Phoenix. "This will provide additional clarification."
Day traders and active investors are most affected, but so are people who hire professional money managers to buy and sell securities for them in "separate" or "managed" brokerage accounts.
"Often, there are 30 or 40 stocks in the portfolio, and the (trading) turnover is fairly rapid," said Bob Kamman, a Phoenix tax attorney.
By contrast, internal trades conducted by mutual-fund managers on behalf of shareholders wouldn't be subject to the new reporting requirement. But people who frequently buy and sell different funds on their own could face problems.
Some preparers say the new policy works against simplicity and efficiency, even though the IRS apparently hopes to boost electronic filing by discouraging paper attachments.