On November 22, 2010, the United States Internal Revenue Service released the final regulations on Cost Basis Reporting, 26 CFR Parts 1, 31, 301 et al; Basis Reporting by Securities Brokers and Basis Determination for Stock.
Among other things, these final regulations require brokers to report a customer’s adjusted basis in sold securities and classify gain or loss as long-term or short-term, and allow taxpayers to compute the basis of certain stock by averaging. The regulations affect brokers and custodians that make sales or transfer securities on behalf of customers, issuers of securities, and taxpayers that purchase or sell securities.
The new rule requires issuers and transfer agents to record cost basis information on all stock issuances and transfers. Starting January 1, 2010, most stock transfer agents will require that all stock issuances and stock transfers must contain the price of the stock. If the cost basis is not provided for individuals transferring shares, or for an issuer issuing shares, then it may be assumed that the issuance was a gift or issued without consideration, but in any case the “fair market value” would be recorded. This may result in tax ramifications both for the issuer or transferor and the recipient.
Issuers should check with their transfer agents to determine what new form of treasury/stock issuance order they will accept.
If you have questions about stock issuance orders or transfers, please contact any member of Clark Wilson LLP’s Corporate Finance & Securities Group.