IRS Definition
A broker or barter exchange must file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for each person:
- For whom the broker has sold (including short sales) stocks, commodities, regulated futures contracts, foreign currency contracts (pursuant to a forward contract or regulated futures contract), forward contracts, debt instruments, options, securities futures contracts, etc., for cash;
- Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806; or
- Who exchanged property or services through a barter exchange.
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If you sold stock, bonds or other securities through a broker or had a barter exchange transaction (exchanged property or services rather than paying cash), you will likely receive a Form 1099-B. Regardless of whether you had a gain, loss, or broke even, you must report these transactions on your tax return.
Although you must report the full amount of the proceeds, you will also be asked for your basis (what you paid for the stock and any expenses such as brokerage fees). The total gain or loss will be entered on your tax return.
If you receive a Form 1099-B and do not report the transaction on your tax return, the IRS will likely send you a CP2000, Underreported Income notice. This IRS notice will propose additional tax, penalties and interest on this transaction and any other unreported income. Learn how to handle an underreporter inquiry (CP2000).
As an expert in taxation and financial reporting, I bring a wealth of knowledge and practical experience to the discussion of IRS Form 1099-B and the associated reporting requirements for brokers and barter exchanges. My expertise is grounded in a thorough understanding of tax regulations, financial transactions, and compliance procedures.
Let's delve into the key concepts mentioned in the provided article:
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Form 1099-B: Proceeds From Broker and Barter Exchange Transactions:
- This form is used by brokers and barter exchanges to report various types of transactions to the IRS and taxpayers.
- It covers the sale of stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, and other similar transactions.
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Reporting Obligations of Brokers:
- Brokers are required to file Form 1099-B for each person for whom they have conducted transactions, including selling stocks, commodities, or other financial instruments for cash.
- The reporting also extends to situations where a person received cash, stock, or other property from a corporation that the broker knows or has reason to know has undergone a significant change, such as an acquisition of control or a substantial change in capital structure reportable on Form 8806.
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Barter Exchange Transactions:
- Form 1099-B is also applicable when property or services are exchanged through a barter exchange rather than a cash transaction.
- Individuals involved in barter exchanges need to be aware of the reporting requirements, and brokers facilitating such exchanges must file the necessary forms.
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Taxpayer Responsibilities:
- Individuals who sold stock, bonds, or securities through a broker or engaged in barter exchange transactions are likely to receive Form 1099-B.
- Regardless of whether there was a gain, loss, or break-even, taxpayers are obligated to report these transactions on their tax returns.
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Basis Reporting:
- Taxpayers are required to provide information on their basis, including what they paid for the stock and any associated expenses such as brokerage fees.
- The total gain or loss resulting from the transaction is entered on the tax return.
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Consequences of Non-Reporting:
- Failure to report transactions documented on Form 1099-B may lead to the IRS issuing a CP2000, an Underreported Income notice.
- The CP2000 notice proposes additional tax, penalties, and interest on the unreported income, necessitating proper handling and resolution by the taxpayer.
In conclusion, understanding the intricacies of IRS Form 1099-B and the associated reporting requirements is crucial for both brokers and taxpayers to ensure compliance with tax regulations and avoid potential consequences of non-reporting.
