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Hi folks,

I am starting to slog through my taxes. Now that the brokers are required to report cost basis on the 1099Bs, I see that the cost basis is not reported correctly for transactions where a put was exercised and shares were put to me. Likewise, the sale price or proceeds is not reported correctly where a call was exercised and shares were called away from me.

I looked at IRS Publ. 550, and it says that, as always, the effect of a put or call exercise should be reflected in the cost or the proceeds of each stock sale reported on Schedule D.

On the other hand, I see pustings/articles in the professional tax community saying that taxpayers should not report a number on their tax returns than is different from the one shown on the broker's 1099B.

So, I am at a loss what to do, and would welcome any suggestions, especially from tax pros.

Thanks a lot.

Bubba
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Your broker does not have to report options activity to the IRS until the 2014 tax year. Your legal obligation is to file a correct tax return. Follow the instructions for Form 8949 to make adjustments in the numbers the broker reports. Note that the method for making adjustments is different for covered vs. noncovered transactions.

Ira
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Bubba --

You can report a number different from the 1099-B on your return -- in fact, if the 1099-B number is wrong, you're required to fix it on the return.

On the Form 8949, there's a column labeled "Adjustment, if any, to gain or loss". If the 1099-B number is incorrect, you put the code "B" in the first column, and an adjustment in the second column to adjust the basis to the correct number. So, for example, if the 1099-B reported $100 as your basis, and your put was at $110, which is what you actually paid for the stock, you'd put "B" in as the code, and "$10" as the adjustment, which would adjust the basis from $100 to $110. Then, you'd report the gain/loss in the final column based on the correct $110 basis.

Make sure that in your records you keep proof of the correct basis, i.e. the transaction record showing the counterparty exercising the put at the price you're claiming as your basis.

Hope this helps!

-Dave
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