New Corporate Stock Basis Transaction Reporting Form Due January 17, 2012

The IRS has been developing many new information reporting tax forms to assist them in conducting "behind the scenes" audits of taxpayers.  My blog of January 4, 2012 discusses the new capital gains reporting form, and the fact that brokers must track the tax basis of their customers' stock purchases after 2010.  New Form 8937 applies to corporations that undertake an "organizational action" after 2010 that affects the tax basis of its stock held by its shareholders.  This new form not only assists stockbrokers in tracking stock basis, but also provides information to the IRS for its purposes.  Form 8937 is required to be filed with the IRS by the 45th day following the organizational action (or by January 15th of the following year if that date is earlier than the 45th day).  A transition rule permits the filing of this form for 2011 actions by January 17, 2012.  A late filing penalty of $100 is assessed for each failure to file with the IRS, up to an annual maximum of $1.5 million.  A like penalty also applies for failure to furnish the information to a shareholder.  Information must also be furnished to the shareholders by January 15th of the year following the calendar year of the organizational action.  So the total penalty can be $200 per shareholder up to $3.0 million!

Examples of "organizational actions" that must be reported include the following:

• A non-dividend cash distribution to shareholders (meaning the distribution exceeds "earnings and profits"),
• A stock dividend to shareholders,
• A tax-free stock split,
• A tax-free spin-off,
• A tax-free acquisition,
• A redemption of stock by the corporation, and
• A leveraged recapitalization.

Exceptions from reporting include initial public offerings, the issuance of stock to someone exercising a right to purchase stock, and distributions that will be reported as taxable dividends reported on Form 1099-DIV.  No exception is provided for privately-owned corporations.  In lieu of using Form 8937, corporations can post the information to their primary public website that remains accessible to the public for 10 years.  In addition, an S corporation can avoid using Form 8937 if it reports the effect of the organizational action on a timely filed Schedule K-1 for each shareholder and timely gives a copy to all proper parties.

The very tight reporting deadline means that you may not have all of the information necessary to accurately complete the form.  The IRS instructions state, "To report the quantitative effect on basis by the due date, you may make reasonable assumptions about facts that cannot be determined before the due date.  You must file a corrected return within 45 days of determining facts that result in a different quantitative effect on basis from what was previously reported."  An acquiring or successor entity must satisfy the reporting obligations if the acquired corporation has not done so, as both entities are jointly and severally liable for any penalties.  This new form obviously creates a burdensome obligation upon affected corporations!