Last month, I spoke at The Tax Reporting Group’s 2018 Tax Reporting & Withholding Conference, in Arlington, VA. I spoke in the Broker Reporting general session panel which included topics such as cost basis 1099B, INT, DIV issues. It was an engaging panel and while we talked about current issues, we also took time to reflect on what we have been doing for the past ten years and a look to what we could be focusing on in the future.

I thought I would share with you some highlights of the discussion.

In 2008, the Emergency Economic Stabilization Act (EESA) was signed, and it changed our lives for the last decade. Prior to 2008, when cost basis reporting wasn’t a component of tax reporting, a minor form change felt like a huge undertaking.

Let’s Take a Stroll Down Memory Lane…
• 2011 – Equities
• 2012-Mutual Funds and Equities enrolled in DRIP
• 2014 Simple Debt, Options including 1256 Options, Rights and Warrants, Single Stock Futures
• 2016- Complex Debt
• 2017- Tax Exempt OID
• 2018- Tax forms and Tax reform. No material changes

Fast forward to 2018, there are no material changes to the 1099-B, INT, OID and DIV forms! The IRS is now allowing for Online fileable PDF forms but this has minimal, if any, bearing to brokers. And, the Tax Reform almost got us again with proposing FIFO only, but that has been removed and the bill was signed, I repeat, with no material changes to Cost Basis or Information Reporting. Whew!

As hectic as it was the last 10 years, Cost Basis folks only incurred minor bumps and bruises and I am glad we’re are all here to tell our tales. The regulatory changes in the EESA introduced complexity and, due to the circumstances we were faced with, the focus was less on efficiencies and mainly on being compliant.


I’ll tell you what I think we should start focusing on …Operational Opportunities. I am sure each of us has a huge list of things we would like to do better or more efficiently. I have a few suggestions below but really what I want to do is trigger some thought on areas of your business and in the industry where we can make things better for everyone involved, especially the end client.

I challenge you to start thinking outside the box


1. Vendor Consolidation

The biggest pain point I hear and have lived through is managing multiple vendors to get to the end of the task. I may be speaking to this from a tax reporting/cost basis perspective however, I know from prior experience and from conversations with colleagues, this issue exists across many areas of our businesses. For example, when I managed tax reporting for a brokerage firm, I had a print vendor, a Cost Basis vendor, a back-office vendor and a tax processing vendor in addition to all the internal areas of my firm that needed to come together to complete the tax reporting tasks. A good opportunity would be to continue to streamline our processes.

Wouldn’t it be nice to have 1 point of contact or as I like to say…1 butt to kick?

2. The Tax Crunch

Specifically, as it relates to Cost Basis reporting; why do we wait until it’s tax season to start pairing the cost basis to the gross proceeds records for 1099 reporting?

Cramming 12 months into a short period of time during the tax season not only introduces obvious issues, it also causes firms to ramp up their tax reporting staff which is very costly. We work 16-hour days to get all tasks completed within the tight timelines that are established. This burns out our staff and is proven to be counterproductive.

When I’ve asked folks why, the common response is “This is how it’s always been done”; I can’t tell you how many times I’ve heard this! That’s an excuse…have you ever thought about doing this monthly or maybe even quarterly? I know there’s a lot going on throughout the year, but I do think it’s the perfect time to think about other ways…OPPORTUNITIES. There’s approx. 4 months, 80 work days, 1300 hours per employee during this crunch time that we cram 12 months of data reconciliation into…if we did this monthly that would equate to approx. 100 hours per month; 25 hours a week or 5 hours a day. Doesn’t that sound better? Don’t have the time or staff to do this throughout the year? What about outsourcing it to your cost basis vendor? Scivantage offers this as a service to allow our clients to focus their time on more strategic initiatives.

3. Transfer of Basis

This is one of my favorite opportunities. The IRS requires cost basis reporting. If positions transfer between firms (ACAT, or otherwise) the cost basis of that tax lot or tax lots must stay with that position in order for firms to have the necessary information to stay compliant for information reporting when a position is realized.

What the IRS did not do is mandate the method by which the transfer of basis should occur. The industry standard is CBRS (Cost Basis Reporting Service via DTCC) however we all know all firms/contra parties are not CBRS participants.

I can tell you in the first 4 months of 2018 my firm processed over 1.5 million transfers to an external source on behalf of my clients and 60% of those went to non CBRS participants; that’s a big number.

On the receiving side, it’s difficult at times to obtain the transfer statement / cost basis information from the non CBRS delivering firms. When you do receive it, it can come in many forms; spreadsheets via email; or maybe a transfer statement in the mail which leads to manual processes and audit concerns.

The rule states that the receiving firm request cost basis from the contra party/delivering firm after 15 days. At that time, the receiving firm can treat the position as non-covered, that’s great from a reporting perspective however it’s not a great client experience.

Have you considered alternative solutions? Couldn’t we transfer basis amongst ourselves?

What if a transfer from one of my clients is going to another one of my clients? It would be a much more streamlined process to transfer the basis to myself – from client A on Maxit to client B on Maxit.

There may be some consent needed, however it is feasible. So why not let our cost basis providers do what they are intended to do; provide cost basis!! There were 2 other cost basis providers on the panel I participated in, why couldn’t we transfer basis between cost basis providers without a middle man?

4. Income Reclassifications

Income Reclassifications was always one of the most important tasks within tax reporting operations; I’m not implying that it’s no longer important, however with all the other challenges we’ve been faced with in the last decade it hasn’t gotten as much of the attention it deserves.

There’s late notifications from issuers causing client dissatisfaction due to late corrected tax forms to our clients. This is another area where the break the IRS has given us in 2018 is an opportunity to redirect some of the attention. Many firms send tax forms to their clients in “waves” where the first round of forms is made up of the less complex forms and not subject to any income reallocations that would result in a corrected form.


As I said, these are some initial ideas/opportunities we can be thinking about taking advantage of in our “change free” year. I am sure there are many others out there and I would love to hear them! I invite you to join our Scivantage Cost Basis Reporting Forum on LinkedIn and become part of the discussion.