See smoking guns on botched 1099-Bs from securities brokers in our Mar. 28 Webinar recording

March 28, 2012 | By: Robert A. Green, CPA

Our March 28 Webinar shows smoking guns on botched 1099-B reporting from brokers, apples and oranges in the rules between brokers and taxpayers and why it’s irresponsible to file a complete tax return based on these 1099-Bs. Any accountant who signs a tax return with these unreconciled differences is skirting on the edge of malpractice. Don’t rush to file a return with these errors and problems. The early bird won’t get the worm; he may get audited by the IRS.

See our three important Webinars on cost-basis reporting here

In the March 28 Webinar, our TradeLog chief accountant shows a 1099-B reporting more than $50 million of incorrect wash sale loss deferrals because the broker reported potential wash sales rather than actual wash sales. TradeLog, however, reports the correct wash sales amount of under $20,000. TradeLog prepares Form 8949 and shows this $50 million plus net “adjustment,” really an overall difference, including the wash sale errors. We think it’s foolish to file a tax return with that type of large difference — it will surely attract undue attention from the IRS. Why not force the broker to fix the wash sale reporting first? Few brokers will reply to these requests before April 15.

See how a second broker’s 1099-B doesn’t match TradeLog’s cost-basis reporting information. We simply can’t trace the broker’s cost basis amounts to any correct raw data in TradeLog — which downloads actual trades — and we can’t imagine what the broker did wrong here. We know brokers sliced and diced raw data into all sorts of categories in an attempt to comply with new IRS rules and we’ve seen several cases of bad accounting, where brokers adjust proceeds when they should adjust cost-basis and vice versa. Watch us demonstrate how this same broker provided the client with a “Realized Gain or Loss Report” in his 1099-B Supplemental Information (a section that is not sent to the IRS). This report continues a perpetuation of the unexplained errors stated above. If the client relies on this report, his tax return will be very wrong.

We usually don’t name names, but we do for these two large online brokerage firms. It’s time they fess up.

While TradeLog software is the best solution in most cases, you need to teach it how to handle your broker’s 1099-Bs. There are many switches to turn on or off so TradeLog can simulate how your broker handled the cost-basis reporting rules. If you find differences, this is the first place to revisit. For example, did your broker report all ETFs or just securities ETFs (RICs)? The latter is correct. As we explain on the Webinar, it’s not uncommon to find download errors which require correction. Plus, TradeLog doesn’t calculate corporate actions — you need to calculate those by hand.

This year more than ever before, you need a trained TradeLog accountant and CPA firm like Green NFH, LLC to review your TradeLog data files, your accompanying Form 1099-Bs and other Supplemental Information provided with 1099-Bs. On almost every file to date, we’re finding incorrect accounting items that require our assistance, investigation and adjustment. Don’t waste days or weeks pulling your hair out; get the help you need from a person highly experienced in finding the differences.

File a valid extension by April 17 to give us six more months to get this right. We can help with your extension if you sign up for our tax preparation service very soon. Otherwise, Robert Green CPA can consult you on your extension before April 17. Don’t forget about the very important Section 475 MTM election due by April 17 with the extension filing, too. For information on extensions and Section 475, see our March 10th blog.

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