More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
The IRS is preparing to issue three regulations to address concerns created by its issuance of regulations last October surrounding reporting the cost basis of stocks (TD 9504).
In June, the IRS issued Notice 2011-56, which offers a favorable resolution to the issues, according to a commentary by Stevie D. Conlon, senior director & tax counsel, risk & compliance, securities tax solutions, for Wolters Kluwer Financial Services
The first matter concerned the ability of a customer to opt out of a broker’s default method of lot relief for determining cost basis on the sale of average basis eligible mutual fund and dividend reinvestment plan shares.
The final regulations had not provided for the customer to be able to undo the calculation of average basis of shares held and acquired prior to the opt-out, even if the customer had not sold any shares before opting out. However, the final regulations had included a way for customers to opt out of averaging if they had elected averaging and no shares had been sold.
It is now expected that customers will be able to opt out of averaging if it was the broker default choice, under appropriate conditions.
The second rule would clarify treatment of cash instead of fractional shares issued in dividend reinvestment plans. If a customer receives cash instead of fractional shares and that cash is not sufficient to reinvest 10% as is required for a dividend reinvestment plan, the plan would not be disqualified as a CDRP on that basis. The previous regulation had not been specific on that point.
The third would clarify that lot relief methods are applied on an account-by-account basis, since limitations imposed by both technology and systems and the lack of knowledge by a broker about a customer’s other holdings would make it impossible to apply otherwise.