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GainsKeeper® from Wolters Kluwer Financial Services, Now Has Debt and Options Functionality for Cost Basis Reporting Phase 3 Compliance

Wolters Kluwer Financial Services today announced that its GainsKeeper® tax lot accounting system now includes debt and options functionality for cost basis reporting phase 3 compliance.

On April 18, the IRS issued final regulations for phase 3 reporting for debt, options and single stock futures. This phase generally takes effect beginning Jan. 1, 2014, and is widely recognized as the most difficult and complex of the three phases of this law. More complex debt is subject to reporting beginning Jan. 1, 2016. The rules require accommodating basis adjustment tax calculations for Original Issue Discount (OID), bond premium and market discount that must be integrated with other basis adjustments for corporate actions and wash sales, as well as the lot relief rules for determining which positions are sold.

“Compliance with the cost basis reporting law requires the mobilization of impacted organizations in order to deliver massive operational change via significant technology upgrades efficiently,” said Chuck Ross, general manager of Investment Compliance Solutions at Wolters Kluwer Financial Services. “With this functionality, our clients will be well-positioned to comply on time and to help their clients address even the most complex cost basis reporting requirements.”

“GainsKeeper has released debt and options functionality, but some organizations might not fully appreciate that there are significant complexities in the tax rules and calculations applicable for reporting of debt in particular,” notes Stevie D. Conlon, senior director and tax counsel, Wolters Kluwer Financial Services. “For example, corporate actions affecting debt and the tax rules and customer elections that the regulations require brokers to accommodate in calculating OID market discount and bond premium for bonds will likely impose severe challenges for brokers. In addition, the difficulties in making the required calculations for more complex debt essentially mean that any broker or system that has not already begun developing these rules may be at risk of not meeting the phase 3 requirements on time.”

The cost basis reporting law was enacted in 2008 as part of the Emergency Economic Stabilization Act and provided for a staggered three-phase set of effective dates for different types of securities: stock acquired on or after Jan. 1, 2011; qualifying mutual fund and dividend reinvestment plan (DRP) shares acquired on or after Jan. 1, 2012; and debt instruments, options and other securities designated by the IRS which per IRS Notice 2012-34 issued May 2, 2012, now has an effective date of Jan. 1, 2014.