AccountingWEB.com - Jan-11-2006
A good number of tax preparers and their clients may be breathing sighs of relief now that the Internal Revenue Service (IRS) has clarified its instructions for reporting capital gains and other investment information on 1040 forms.
The IRS has clarified confusion created when, according to the National Association of Tax Professionals (NATP), its earlier instructions for 1040 Forms omitted the longstanding policy that investors who made high volumes of investment transactions could submit summarized reports on that activity rather reporting details on each transaction in the 1040s' Schedule D pages. The omission had prompted some tax practitioners to speculate they would have to charge some taxpayer clients hundreds of dollars extra to cover the costs of gathering and reporting the information they thought was needed for the Schedule D pages.
The IRS 's new instructions, available on its Web site irs.gov, say that high-volume traders, in lieu of completing Schedule Ds for each transaction can submit summarized transaction totals typically prepared by their investment managers or brokerage houses, provided that the summaries include all the details required by the IRS and are properly formatted.
"This clarifies the confusion. I know there was a lot of press about this item being omitted," said Randi Isakson of the NATP's Tax Knowledge Center in Appleton, Wisc.
Indeed, there was at least one national press account in which CPAs across the country complained that they would be forced to bill their clients excessive amounts and may not have the staff needed to gather all the information required to complete the Schedule Ds.
Dennis Echelbarger, a CPA in Grand Rapids, Mich., in an interview with the Newhouse News Service, estimated that a client who had been involved in 50 securities transactions would probably pay $200 to $500 more in tax preparation fees.
"If you literally have to enter everything, and we can't get it in any form but paper, it could easily add $20 to $30 per trade, "Ed Zollars of Thomas and Zollars in Phoenix, said in the same Newhouse story. He was unavailable for comment after the IRS issued its revised directions.
Fellow CPAs John Pridnia of Muskegon, Mich., and Leon Taylor of Beaverton, Ore., also predicted mass confusion and higher costs for practitioners and client. Jill Senso, an NATP researcher, mire recently added, "I know some people at regional firms were freaking out about this."
"We regret any confusion and misperceptions that were caused," IRS spokesman Bruce Friedland said after the new instructions were published. But he had no explanation on the NATP's contention that the IRS omitted some information in the earlier instructions.
He said the new instruction do not in any way change IRS' policy for reporting investment transaction information. The IRS has been letting high-volume traders submit complete and properly formatted summaries in lieu of itemized Schedule Ds for several years.
~JC
