1/12/06 - CCH responds to Schedule D reporting controversy

http://tax.cchgroup.com/news/headlines/2006/nws11206.htm#1

 

January 12, 2006

 

Schedule D Guidance Helpful; Clarity Still Sought For E-Filers

The IRS on January 9 issued on its website much-needed clarification for the new 2005 Instructions for Form 1040, Schedule D, Capital Gains and Losses (TAXDAY, 2006/01/10, I.2). In late December, the IRS issued new instructions that implied that taxpayers are required to list each capital gain or loss transaction individually on Schedule D, with the ability to use several D-1 forms if there are many transactions.

Industry groups and tax professionals were concerned because compliance with a rule that demanded line-by-line listing of each transaction, especially in the case of securities sales, would create a significant time and expense burden for paper filers in addition to creating problems with how to adapt such a rule to e-filing. Many groups requested that the IRS allow summary attachments of year-end brokerage statements, which they claim is consistent with past practice. While most practitioners have expressed their initial satisfaction (or resignation) over the IRS's January 9 website clarification as it applies to paper filers, many have voiced their continuing concern over compliance in the e-filing environment.

In a letter to the IRS dated

December 23, 2005

, the American Institute of Certified Public Accountants (AICPA) asked the Service to revise the instructions and requested that capital gains or losses be reported through an attached summary statement. The letter states that they believe "more individual taxpayers would become interested in e-filing if the Service would explicitly state that the agency will accept e-filed returns that contain summary transaction information on Schedule D."

The discrepancy in the e-file system has practitioners confused. Currently, the IRS allows large corporations to use summary submissions of Schedule D as part of the e-file program. However, in the latest guidance, it is unclear to many what e-filers should do now that the instructions require a line-by-line listing.

An IRS spokesperson told CCH that taxpayers are still able to e-file a Schedule D or D-1 with up to 5,000 transactions. When asked if e-filing with an attached spreadsheet containing all the information required on a Schedule D or D-1 but not actually e-filing the schedules is permitted, the IRS spokesperson told CCH, "No, e-filing up to 5,000 transactions is for Schedule D-1."

In response to this new guidance, Benson Goldstein, AICPA Technical Manager, told CCH that the AICPA is pleased that the IRS has put out its recent website notice, but that a conference call will still need to be scheduled to clear up any remaining issues such as the problem with e-file.

By Alison Reynolds and George Jones, CCH News Staff