There has been some discussion about how to report Schedule D transactions when there were an extreme amount of transactions. The following was emailed to me from the Calif Chapter of the Enrolled Agents, so thought I would pass it on.
IRS Clarifies Schedule D Instructions for 2005
The IRS has received some inquiries about a revised paragraph in the 2005 Schedule D Instructions.
The revised paragraph beginning on page D-5 of the Schedule D instructions and related to Lines 1 and 8 states:
You must enter the details of each transaction on a separate line. If you have more than five transactions to report on line 1 or line 8, report the additional transactions on Schedule D-1. Use as many Schedules D-1 as you need. Enter on Schedule D, lines 2 and 9, the combined totals from all your Schedules D-1.
Do not enter “see attached” and summary totals from an attachment in lieu of reporting the details of each transaction directly on Schedule D or D-1.
Some of the questions the IRS has received and the answers follow:
Q. Is this a new reporting requirement?
A. No, it is a clarification. Taxpayers always have been required to provide information related to sales and exchanges on lines 1 and 8 on Schedule D. However, some taxpayers provided only summaries of these sales and exchanges or attachments that did not contain all the transaction details required by Schedule D.
Q. Why was the paragraph revised?
A. It was updated to remind investors that they must include ALL transaction information as required on Schedule D. Some filers were submitting copies of brokerage statements that did not include all the required transaction information, were attaching summaries, or were writing “details available upon request.”
Q. What are the reporting rules for traders?
A. On page D-3 of the 2005 Schedule D Instructions, under “Traders in Securities” it states: “Like an investor, a trader must report each sale of securities (taking into account commissions and any other costs of acquiring or disposing of securities) on Schedule D or D-1 or on an attached statement containing all the same information for each sale in a similar format.”
Q. Can investors use an attached statement like traders?
A. Yes. Investors may submit attachments in lieu of completing lines 1 and 8 on Schedule D or D-1 as long as the attachments contain all the required information and are in a similar format. This means investors may follow the same format required of traders.
Q. Is there any further guidance for electronically filed returns?
A. Yes. For electronically filed returns, filers may attach any necessary Schedules D-1, or acceptable substitutes for Schedule D-1, to the Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return.
Q. Will investors face penalties if they fail to comply?
A. Many factors, such as the facts and circumstances of the case, determine when the IRS applies a penalty. Generally, a tax return that is accurately and timely filed, with the correct amount of tax paid, is not penalized. However, investors must comply with long-standing reporting requirements about each transaction. Again, investors may submit attachments – other than Schedule D or D-1 – as long as the attachments contain the required information and are in a similar format.
Q. What about previously filed tax returns?
A. Taxpayers may amend returns for the three previous tax years. The IRS assumes taxpayers submit accurate, timely filed tax returns. Again, a tax return that is accurately and timely filed with the correct amount of tax paid generally is not penalized.
Q. Is this revision to Schedule D Instructions part of a new compliance initiative?
A. No. Taxpayers always have been required to file the transaction information. The revision was a reminder to taxpayers about existing requirements.
Q. Doesn’t the 1099-B information return cover this information?
A. No. Form 1099-B does not provide the date acquired or the basis of the securities sold. These transaction details are required to determine the accuracy of capital gains and losses claimed by the taxpayer.
The IRS regrets any confusion related to the revision and hopes these questions and answers provide adequate clarification.
Sandy
SB/SE Headline Information
Volume # 143 January 13, 2006
Dear Partner,
The IRS has received some inquiries about a revised paragraph in the 2005 Schedule D Instructions. The revised paragraph beginning on page D-5 of the Schedule D instructions and related to Lines 1 and 8 states:
You must enter the details of each transaction on a separate line. If you have more than five transactions to report on line 1 or line 8, report the additional transactions on Schedule D-1. Use as many Schedules D-1 as you need. Enter on Schedule D, lines 2 and 9, the combined totals from all your Schedules D-1.
Do not enter “see attached” and summary totals from an attachment in lieu of reporting the details of each transaction directly on Schedule D or D-1.
The attached article contains answers to some of the inquiries the IRS has received about this paragraph.
Thanks again for partnering with us to educate your small business members. We hope this education makes it easier for them to fulfill their tax obligations.
For more information, please visit our small business web site at www.irs.gov/smallbiz.
Volume # 143 January 13, 2006
Dear Partner,
The IRS has received some inquiries about a revised paragraph in the 2005 Schedule D Instructions. The revised paragraph beginning on page D-5 of the Schedule D instructions and related to Lines 1 and 8 states:
You must enter the details of each transaction on a separate line. If you have more than five transactions to report on line 1 or line 8, report the additional transactions on Schedule D-1. Use as many Schedules D-1 as you need. Enter on Schedule D, lines 2 and 9, the combined totals from all your Schedules D-1.
Do not enter “see attached” and summary totals from an attachment in lieu of reporting the details of each transaction directly on Schedule D or D-1.
The attached article contains answers to some of the inquiries the IRS has received about this paragraph.
Thanks again for partnering with us to educate your small business members. We hope this education makes it easier for them to fulfill their tax obligations.
For more information, please visit our small business web site at www.irs.gov/smallbiz.
IRS Clarifies Schedule D Instructions for 2005
The IRS has received some inquiries about a revised paragraph in the 2005 Schedule D Instructions.
The revised paragraph beginning on page D-5 of the Schedule D instructions and related to Lines 1 and 8 states:
You must enter the details of each transaction on a separate line. If you have more than five transactions to report on line 1 or line 8, report the additional transactions on Schedule D-1. Use as many Schedules D-1 as you need. Enter on Schedule D, lines 2 and 9, the combined totals from all your Schedules D-1.
Do not enter “see attached” and summary totals from an attachment in lieu of reporting the details of each transaction directly on Schedule D or D-1.
Some of the questions the IRS has received and the answers follow:
Q. Is this a new reporting requirement?
A. No, it is a clarification. Taxpayers always have been required to provide information related to sales and exchanges on lines 1 and 8 on Schedule D. However, some taxpayers provided only summaries of these sales and exchanges or attachments that did not contain all the transaction details required by Schedule D.
Q. Why was the paragraph revised?
A. It was updated to remind investors that they must include ALL transaction information as required on Schedule D. Some filers were submitting copies of brokerage statements that did not include all the required transaction information, were attaching summaries, or were writing “details available upon request.”
Q. What are the reporting rules for traders?
A. On page D-3 of the 2005 Schedule D Instructions, under “Traders in Securities” it states: “Like an investor, a trader must report each sale of securities (taking into account commissions and any other costs of acquiring or disposing of securities) on Schedule D or D-1 or on an attached statement containing all the same information for each sale in a similar format.”
Q. Can investors use an attached statement like traders?
A. Yes. Investors may submit attachments in lieu of completing lines 1 and 8 on Schedule D or D-1 as long as the attachments contain all the required information and are in a similar format. This means investors may follow the same format required of traders.
Q. Is there any further guidance for electronically filed returns?
A. Yes. For electronically filed returns, filers may attach any necessary Schedules D-1, or acceptable substitutes for Schedule D-1, to the Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return.
Q. Will investors face penalties if they fail to comply?
A. Many factors, such as the facts and circumstances of the case, determine when the IRS applies a penalty. Generally, a tax return that is accurately and timely filed, with the correct amount of tax paid, is not penalized. However, investors must comply with long-standing reporting requirements about each transaction. Again, investors may submit attachments – other than Schedule D or D-1 – as long as the attachments contain the required information and are in a similar format.
Q. What about previously filed tax returns?
A. Taxpayers may amend returns for the three previous tax years. The IRS assumes taxpayers submit accurate, timely filed tax returns. Again, a tax return that is accurately and timely filed with the correct amount of tax paid generally is not penalized.
Q. Is this revision to Schedule D Instructions part of a new compliance initiative?
A. No. Taxpayers always have been required to file the transaction information. The revision was a reminder to taxpayers about existing requirements.
Q. Doesn’t the 1099-B information return cover this information?
A. No. Form 1099-B does not provide the date acquired or the basis of the securities sold. These transaction details are required to determine the accuracy of capital gains and losses claimed by the taxpayer.
The IRS regrets any confusion related to the revision and hopes these questions and answers provide adequate clarification.
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