From time to time, we receive questions from readers about current topics on their minds. One of our readers wrote earlier this week to ask about an article from Monday’s Tax Notes – 2011 Brings New Return Obligation for Corporate Actions Affecting Basis, by Amy Elliott. The article discussed the newly effective Code section 6045B which generally requires corporations that engage in some act that affects the basis of their outstanding stock or other securities (e.g., a stock split or a distribution in excess of earnings and profits) to file a statement with the IRS and furnish a similar statement to their security holders describing the effect of the action on the basis of each share of their stock.
After reading this article, one of our readers expressed concern that the provision could apply to all corporate actions, including purely internal actions among domestic and foreign subsidiary corporations. For large, multinational companies, a requirement to report to both the stockholders and the IRS every action that affected the basis of a subsidiary’s stock could create an obvious burden. Read literally, the text of the statute would seem to suggest this is exactly what is required, given that the statute applies to “any issuer of a specified security.” Code section 6045B(a)(1). (A “specified security” generally refers to any security in which basis reporting is required – e.g., stocks, bonds, derivative contracts.) (more…)