Cost Basis Reporting in 2013 – Adding Mutual Funds to the Mix

By Donna Fry, Tax Reporting Product Manager, Scivantage

The industry is in high gear with less than one month to go before the Feb. 15, 2013, deadline for the 1099 mailings. With the new reporting requirements for mutual funds, added to the equities mandates from Phase I, firms are looking to lean on the knowledge they gleaned from last year to avoid any issues in 2013.


With the new requirements for mutual funds in this year’s tax season, firms should already have updated and fully tested their tax reporting technology to ensure compliance and data accuracy. In addition, as with Phase I of the cost basis rules implementation, education is crucial to making this season a success. With this being the first year for mutual funds, training the client service support teams should be a priority as investors are likely to reach out to them with questions about tax forms. An appropriate level of training for the support staff will ensure the client assistance process is more efficient and will reduce response and wait times for the customers who may already be frustrated by changes to their forms. Firms should also have relevant, easy to understand and up-to-date information on the company Website. Proactive distribution of web and print collateral, such as an informational client mailer is going to be an important differentiator and could eliminate an influx of calls to the support teams. The timing of the communication is equally significant. It is best to reach out frequently and early on in the process. It could be beneficial to evaluate how clients have communicated historically (high traffic to the FAQ page, hotline, email) and prepare a direct response via the most popular channel. Preemptive and preventative action is key and will make your firm the clients’ trusted advisor. Lastly, firms should ensure that all internal policies, procedures and documentation is in place and all rules have been reviewed in detail throughout the organization to ensure cost basis operations are compliant.

So remember:

♦ Review all rules to ensure the firm is prepared and cost basis operations are compliant
♦ Technology! Technology! Technology! Is up-do-date and recently tested
♦ Customer support teams are well trained and resourceful
♦ Company Website is updated and information is readily available
♦ Proactively communicate using customized and dedicated outreach to customers
♦ Policies, procedures and documentation is in place


One of the biggest pain points experienced in 2012 is likely to persist for this tax season – getting accurate 1099s out to investors by the February deadline. Firms encountered the issue last year when basis information for corporate actions wasn’t always readily available, due in part to an inadequate amount of time provided by the IRS to determine cost basis implications, as well as a surge of inaccurate data from the issuers themselves. This created a challenge for firms to provide the correct information on the original 1099 mailing. Because this data wasn’t uniformly ready, 1099 corrections were often generated. Firms saw a climb in the number of 1099 corrections that were issued starting in 2011 and that is expected to continue. This still remains top-of-mind for a lot of industry members, as each year of regulations brings these requirements to a larger number of firms. While some institutions are in their second year, others are experiencing their first tax season under the regulations.  As a result, investors are likely to see a varied experience if they hold accounts across firms and security types.


Looking ahead to the remainder of the year, firms are gearing up for the final portion of the cost basis rule: fixed income and options. Since the IRS delayed Phase III by one year, companies have the extra time to run tests to ensure tax reporting will go smoothly in 2014, but have the added stress of not knowing the exact stipulations of the rules well in advance. With this in mind, it is imperative to be extra stringent when planning. If firms postpone addressing the issue, they could end up feeling even less prepared than in years prior.

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