Wolters Kluwer Financial Services Offers Cost Basis Readiness Checklist for Fixed Income and Options

Waltham, MA - 21 February 2012

Wolters Kluwer Financial Services has developed a new checklist to help securities firms’ operations and IT departments prepare and gauge their readiness for the third phase of the cost basis reporting law, which goes into effect for fixed income securities and options acquired as of Jan. 1, 2013.

While financial services firms have already done a lot of work preparing for the cost basis reporting law’s initial effective dates for equities and mutual funds, the last phase of the law imposes significant new burdens on them.

“The list of stocks most investors hold is somewhat finite, whereas fixed income securities are more like the Pacific Ocean when you consider the vast number and diversity of all the different securities that are encompassed, which includes large holdings of municipal bonds, privately-placed debt and foreign debt,” said Stevie Conlon, senior director and tax counsel at Wolters Kluwer Financial Services. “Additionally, the calculations and algorithms for determining the basis on debt and options are much more complex, and few brokers currently have the data or systems they’ll need to meet the law’s requirements.”

The new checklist poses more than two dozen critical questions to assist firms in assessing the adequacy of their current processes and to help firms prepare for new tax reporting requirements for debt and options given the law’s looming effective date. The questions address a number of issues, including:

  • Calculating Original Issue Discount (OID) for 1099 Reporting: Do you currently perform basis adjustment calculations that take into account the unique purchase price for each tax lot?
  • Scope of Calculations: Do you calculate basis adjustments for municipal bonds and complex debt securities, such as contingent debt or foreign currency denominated debt?
  • Tax Lot Accounting: Are your calculations of basis adjustments for debt integrated with wash sales and lot relief?
  • Transfer Reporting: Does your system permit you to calculate these adjustments on any day of the year to support transfer reporting?

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