Cost Basis Changes for S Corporations

As part of the Emergency Economic Stabilization Act of 2008, brokers and mutual fund companies will be required to begin Form 1099-B reporting to the Internal Revenue Service (IRS) and to corporations that meet IRS requirements to be taxed under Subchapter S (S Corporations), on mutual fund shares and dividend reinvestment plan stock (or similar arrangements) acquired on, and subsequently redeemed, after January 1, 2012.

S Corporation Definition
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.  S corporations are responsible for tax on certain built-in gains and passive income.

To qualify for S corporation status, the corporation must meet the following requirements:

  • be a domestic corporation
  • have only allowable shareholders: including individuals, certain trusts, and estates may not include partnerships, corporations or non-resident alien shareholders
  • have no more than 100 shareholders
  • have one class of stock
  • not be an ineligible corporation, i.e. certain financial institutions, insurance companies, and domestic international sales corporations.