What does box E on 1099-B mean Exactly

[gytt]

Hello Experts!

I received a 1099-B form from my broker. One transaction indicates "E (basis not reported to IRS)", but it DOES show the cost under column "Cost basis".  My understanding is that the same copy of 1099-B is sent to both IRS and me, so the cost base is actually reported IRS. I am confused. Could you please advise? Thanks in advance.

[JosephS1]

A 1099-B with Box E checked simply means that the amount shown as cost basis, if any, was not reported to the Internal Revenue Service. 

Your transaction(s) may have an amount showing as cost basis but that does not mean it was reported directly.  What was reported to the IRS was the sales proceeds only for those transactions.

The following is an excerpt from the IRS instructions for Form 8949:

The actual cost basis may differ from what shows on the form you received, such as in the case of reinvested dividends, if any, and other amounts that may increase or decrease the basis as shown.  If you can determine the actual cost basis as you have it then enter that amount as the cost basis in the entry.

@gytt 

[gytt]

Thank you @JosephS1 ! My confusion is that if IRS receives the same copy of 1099-B form which shows the cost basis, then it has the number reported by the broker. Box E (cost basis not reported to IRS) seems contradict to the fact that the cost basis is indeed reported to IRS.

[JulieS]

Yes, that may seem confusing, but the distinction is that when box E is used, the asset in question is a non-covered security. 

 A non-covered security is an SEC designation where the cost basis of securities may not be reported to the IRS. The adjusted cost basis of non-covered securities is only reported to the taxpayer, and not the IRS.

Assets are considered non-covered securities for a variety of reasons, including: 

• The cost basis of securities is small and of limited scope.
• An investment in a Dividend Reinvestment Program (DRIP) that uses the average cost method of calculating the cost basis. 
• Stocks sold by foreign intermediaries and foreigners.
• Assets purchased prior to 2011. 

[gytt]

I am even more confused when you say "The adjusted cost basis of non-covered securities is only reported to the taxpayer, and not the IRS." Isn't the same 1099-B form sent to both me and the IRS? So, whatever is reported to me is also reported to the IRS, right? Do you mean sending the 1099-B form which has cost basis to IRS is not an official report, and there is another tool to report to IRS? Where am missing? Sorry for my confusion.

[JosephS1]

No, please no need to be sorry.  Taxes are often confusing even for the best of us.  What transpires here in your case are actually 2 different reporting items.  The first reporting item is to you, showing the sales proceeds and what, to the broker's best information, is your cost basis.  That is what is reported to you on Form 1099-B.

What is reported to the IRS, on the other hand, is just the sales proceeds and the broker is telling the IRS that you will report the basis on your return.

Consider 2 separate 1099-B's:  One with both sales proceeds and basis showing that is sent to you, and one with only sales proceeds sent to the IRS.  Essentially that is the situation with Box E for long-term sales, and Box B for short-term sales.

If you would like to read on it further, or if you find yourself with a case of insomnia one night, below is a link to the instructions for Form 1099-B.  You will find the explanations for the various codes on Page 7 of the instructions.

Form 1099-B Instructions

@gytt 

[gytt]

Thank you again @JosephS1 !

The 1099-B Instructions page does not clear out my confusion 😕.

You mentioned "2 separate 1099-B's" in cases of box E checked and box B checked. If the broker sends different copies of 1099-B to me with the cost basis and to the IRS without it, then I am cleared as why I am reported the cost basis, but not the IRS. From the beginning of this conversion, I assumed that the same copy of 1099-B form is always sent to both me and the IRS. Am I right now 😊, or not really?

[fanfare]

IRS instruction provide for different reporting of a  corrected cost basis depending on the box category D v.s. E or A v.s. B

 therefore you can figure that IRS makes a distinction.

In either case, if the basis is not correct you can report the correct basis by following the Column (f) Code B instructions for your Box.

Beyond that, it's not worth worrying about.

@gytt 

requirements for individuals are not the same as for brokers.

you are  expected to report the true cost basis.

[Phicro]

I believe the reason for this is that when you sell a stock that you bought before the IRS required brokerages to report basis, it shows up in a different place than sales of stocks you bought more recently.  However, your brokerage company has the information, so they put in the cost basis, even though it was not reported previously.  I hope this helps.  

[gytt]

My big thanks to all of you! 

Here is a little bit background about my questions. The cost basis reported to me by my broker (with box E checked) is different from what I calculated. It may be caused to multiple purchases and sells of the same stock in the past several years. So, I think I need to make a correction on my tax return. But then, if IRS sees that the cost basis on my tax return is different from that showing on 1099-B (although box E is checked, IRS still knows the cost basis showing on the SAME1099-B sent to both it and me, right?), would IRS ask me to provide the evidence? If so, I would need to go back a few years. The difference is only few hundred $. I am not sure if it worth the trouble if the IRS does ask me to provide the details.

[PattiF]

If you do change the cost basis, make sure to keep detailed records of your calculations that were used for the cost basis that you used instead of what was on Form 1099-B. The IRS may contact you about this at some point.

As you said, the difference is only a few hundred dollars and may not make a difference in your refund or tax liability. Check the tax tables to see if the change would make a difference in the big picture of your tax return.

@gytt 

[gytt]

Thank you for your advice @PattiF !

That's what I am thinking too. On the other hand, would it be normal for IRS to see the difference on cost basis when it is not reported to the IRS (box E checked)?

[PattiF · Accepted solution]

No, if it is not reported to the IRS, you should be good. Keep your records just in case and keep track of your stock basis for the purchases and sales.

@gytt 

[gytt]

Thank You All!