The IRS recently released final regulations (TD 9504) describing new basis reporting rules that brokers who deal in securities will be required to follow starting January 1, 2011. Brokers already are required to report gross proceeds received from the sale of securities by providing the customer and the IRS with Form 1099-B. Under the new regulations, brokers also will be required to report the customer’s adjusted basis and whether any gain or loss is long-term or short-term with respect to the sale of covered securities. The term “security” is defined broadly to include stock in a corporation, notes, bonds, debentures, commodities, derivative contracts and “other financial instruments” if the Secretary determines that adjusted basis reporting is appropriate. Generally, brokers will be required to report the basis in stock on a first-in, first-out (FIFO) method if a customer fails to specifically identify the stock that was sold. However, the basis of stock in a regulated investment company (RIC) or dividend reinvestment plan (DRP), may be reported using the average basis method if that method is elected by the customer. Under the regulations, a customer may elect or change from the average basis method at any time. Significantly, a change in the basis determination method is not treated as a change in method of accounting because basis determination does not involve the “elements of consistency and regularity inherent in methods of tax accounting” presumably because basis methods can be determined sale by sale, while a method of accounting applies from year to year. Effective January 1, 2011, brokers also will be required to report the adjusted basis and holding periods for stock that is transferred to another broker, although under IRS transitional relief, no penalties will be asserted for failure to provide a transfer statement in 2011.