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C12-Chp-01-7-Nina Olson

C12-Chp-01-7-Nina Olson - We recommended requiring brokers...

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3e28426a50bd8cfff3126a840b5ca0dbeb5b657a.doc. Page 1 of 1 Written Statement of Nina E. Olson National Taxpayer Advocate Before the Committee on the Budget U.S. House of Representatives On The IRS and the Tax Gap February 16, 2007 The absence of a requirement that brokers track and report customers' cost basis in securities has two consequences. First, it often imposes significant compliance burdens on taxpayers who may not have kept track of their cost basis. To illustrate, a taxpayer who has held AT&T stock since the 1980s has received shares in more than a dozen companies over the years, and on each such occasion, the taxpayer's cost basis had to be split between his existing holding and the spun-off company. Similarly, most mutual fund customers elect to have dividend and capital gain distributions automatically reinvested, and the customer's aggregate basis in a mutual fund holding changes upon each such distribution. If taxpayers don't have complete records, they will be unable to determine or substantiate their basis in many instances.
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Unformatted text preview: We recommended requiring brokers to track and report cost basis primarily because it would make compliance much easier for honest taxpayers. But the second consequence of the absence of cost basis reporting is that it affords less honest taxpayers with significant opportunities to overstate their basis and therefore understate their tax liabilities. Reliable estimates of the amount of underreporting in this area are difficult to come by, but two professors have sized the problem at about $25 billion a year. 9 IRS officials studying the NRP data believe the revenue loss is substantially lower, but they agree that the level of underreporting reaches into the billions of dollars. 10 We have spoken with representatives of the brokerage industry and believe on balance that the revenue benefits of requiring brokers to track and report cost basis exceed the burdens the requirement would impose....
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