Global Tax Adviser
January 10, 2012

U.S. Cost Basis Reporting Due January 17, 2012

Connie Lee
Toronto, U.S. Corporate Tax

Karl Dennis
Vancouver, U.S. Corporate Tax

Jennifer Gann
Montreal, U.S. Corporate Tax

A corporate issuer, including certain Canadian corporations, must now report a corporate action that affects the tax basis of all holders of a “specified security” (e.g., bond, share, note) by filing Form 8937, "Report of Organizational Actions Affecting Basis of Securities" with the IRS by January 17, 2012 or face potentially significant penalties. In addition, an issuer must issue a written statement about this action to its security holders or, alternatively, post the required information on its primary website. The IRS released Form 8937 and its related instructions on January 6, 2012.

Generally, the penalty for failure to file on time is $100 per return (to an annual maximum of $1.5 million) plus another possible $100 penalty for failure to provide correct information to holders or nominees on time (also to an annual maximum of $1.5 million). 

The rules to report corporate actions affecting tax basis of stock (other than stock of a regulated investment company (RIC) or stock acquired in connection with a dividend reinvestment plan (DRIP)) became effective January 1, 2011.

Corporate issuers must provide written statements to security holders by January 15 of the year following the year of the corporate action. In February, the IRS postponed the due date for providing calendar year 2011 corporate action returns (or website postings) to January 17, 2012 in Notice 2011-18.

Reportable transactions
In general, an issuer that takes an organizational action that affects the basis of all holders of a security (or class of security) owned by a U.S. taxpayer that is not tax-exempt must file Form 8937 with the IRS, or post a completed Form 8937 (or equivalent information) on its website, under section 6045B of the Internal Revenue Code. The regulations refer to “a stock split or a merger or acquisition”, and provide examples of a reportable stock dividend and a reportable stock split.

A reporting requirement may be triggered by transactions including:

  • Share exchanges
  • Return of basis distributions
  • Conversions from a publicly-traded partnership into a corporation.

Amounts required to be reported on Form 1099-DIV, "Dividends and Distributions" or initial public offerings may not have to be reported under these rules.

For more information, contact your KPMG adviser.


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