Starting in 2012, the IRS began asking for more specific cost basis information from both Clubs and Brokers, on the 1065 forms that every club is asked to send in.
In our tax printer, we handle this by showing the cost basis information for every block of shares sold, and then ask clubs to fill in either the reported cost basis from the broker, or one of two other options if there was no reported cost basis information.
While it’s satisfying to have your cost basis information reflect what the broker is reporting to the IRS, the two figures do not necessarily need to be an absolute match.
If you are filling in the tax form, and find that the cost basis reported by the broker does not match the cost basis in the tax printer, keep in mind:
The main point of this extra work is to help clubs keep track of the cost basis for their various securities, and to discourage dramatic under-reporting of capital gains.
The IRS rounds to the nearest dollar. If the broker shows a cost basis as 18.43, and your accounting records show 17.67, both figures are 18.00 as far as the IRS concerned.
Any adjustments to cost basis on the 1065 are made in favor of the club; the forms are built to assume that your records are more accurate than the broker’s.
Remember, cost basis is determined by the figures used for individual transactions. There is no adjustment transaction that lets you change the cost basis independent of everything else. The only way to change a cost basis is to change some part of an individual transaction. Unless one of the following parts of a transaction is incorrect, we recommend to NOT change a transaction solely to match the cost basis displayed by the broker:
-The specific block of shares used in a transaction (For a stock Sale, Club Accounting will default to selling the oldest block of shares; your broker may not have done so)
-The number of shares in a transaction
-The price per share used in the transaction
-Any fee or commission involved in the transaction
Unless one of these four things is incorrect, we strongly suggest that you do not make changes to your accounting records solely to make the cost basis match the broker statement.