Friday, May 23, 2014
James Alm (Tulane) & Jay Soled (Rutgers), Improving Tax Basis Reporting For Passthrough Entities, 143 Tax Notes 809 (May 19, 2014) :
Tax basis reporting is a notoriously complex enterprise, and taxpayer compliance is lackluster at best. One area of the law in which basis reporting remains absent is for passthrough entity investments, such as partnerships and S corporations. As a result, many taxpayers do not know the basis they have in their passthrough investments. These taxpayers must therefore estimate the tax basis they have in those investments, often producing inflated basis figures and, as a byproduct, smaller taxable gains and larger taxable losses. In light of its proven track record in the area of marketable securities (where third-party tax basis reporting has recently become mandatory), Congress should make third-party tax basis reporting for passthrough entities a similar reality. Mandating passthrough entity basis reporting would greatly simplify the compliance process, alleviate the IRS's burdensome task of trying to detect basis misreporting, and produce billions of dollars in revenue without raising taxes.