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Complying with higher corporate action standards: The importance of booking the US taxation of corporate actions correctly, given the new cost-basis reporting law
Newly enacted cost-basis reporting law requires brokers to provide the Internal Revenue Service (IRS) and US taxpayers with the adjusted basis and long-term/short-term character of gains and losses for stocks and other covered securities disposed on Form 1099-B. These new requirements will likely affect broker and custodian analysis of corporate actions, given the potential IRS penalty risks. A summary of some of the tax issues currently raised by corporate actions is provided because brokers will need to reassess their methods and assumptions regarding the US federal income tax treatment of corporate actions. This is due to their impact on the computation of basis and the holding period that will be required in complying with the new law.
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