Cost Basis: The Economic Stabilization Act of 2008 and the Energy Improvement and Extension Act of 2008

The Emergency Economic Stabilization Act was signed into law in 2008 primarily to allow the federal government to purchase mortgage-backed securities in response to the subprime mortgage crisis.

This regulation also transfers the responsibility for reporting cost basis from shareholders to financial intermediaries such as issuers, transfer agents, brokers, banks, and mutual funds.

Regulations, posted in the Federal Register, implement a provision in the Energy Improvement and Extension Act of 2008.  Among other things, the regulations describe who is subject to this reporting requirement, which transactions are reportable, and what information needs to be reported.

Due to the complexities of implementing the various types of financial instruments, legislation will be implemented in three stages:

  • Equity stock acquired on or after January 1, 2011
  • Mutual fund shares* or stock eligible for a dividend reinvestment plan (DRiP) acquired on or after January 1, 2012
  • Other security types, such as debt issues, options, private placements acquired on or after January 1, 2013

Effective January 1, 2012, all mutual fund companies will be subject to new reporting requirements for taxable redemptions of mutual fund shares reported to the Internal Revenue Service (IRS) and to shareholders.  In addition to existing requirements to report the gross proceeds from redemptions on IRS Form 1099-B, which will remain in effect, Federated Investors will also be required to report cost basis and holding period information (indication of short-term or long-term gain or loss) for all shares redeemed.