Tax Alert

Corporate Stock Issuers Beware: Reporting Rule Could Require Action by Feb. 15

(Feb. 4, 2011)


 

A new corporate reporting requirement is triggered by any corporate action taken on or after Jan. 1, 2011, which could affect a shareholder’s stock basis. Such actions could include stock splits; stock dividends; recapitalizations; redemptions and distributions not taxed as dividends; or mergers and acquisitions in which stock, or a combination of stock and cash “boot,” is issued. A return must be filed with the Internal Revenue Service (IRS) within 45 days after the corporate action or by Jan.15 of the following year, if sooner. For example, a corporation undertaking a 10-for-1 reverse stock split on Jan. 1, 2011, must file a return with the IRS by Feb. 15, 2011. The IRS has not yet released the form to be filed.

Information statements also must be supplied to affected shareholders by Jan. 15 of the year following the corporate action. The requirement for both the IRS return and the shareholder statements can be satisfied by posting certain information on the corporation’s primary public website by the due date for the IRS return and leaving it accessible for 10 years. An S corporation may meet its requirements by timely filing and providing to shareholders a Schedule K-1 that includes the required information. The requirement does not apply to regulated investment companies until 2012 and may be applied to other types of corporate securities at that time. Noncompliance penalties could be substantial at $100 per information statement not filed.

View Internal Revenue Code Sec. 6045B here
View Treasury Regulation Sec. 1.6045B-1 here
View Treasury Decision 9504 here  

For more information about the complexities involved with implementing this rule, please contact Sheryl Vander Baan at 616.752.4255 or sheryl.vanderbaan@crowehorwath.com.



 


 

 

 

Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.

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