Have you ever wondered how the Internal Revenues Service (IRS) verifies the investment income reported by taxpayers on their returns? As of last week, the IRS will use the CCH® Capital Changes online database to conduct research, verify taxpayer returns or pursue audits of returns.
CCH Capital Changes database contains information on more than 100,000 companies spanning more than 100 years and is considered the tax authority for accurate basis tracking and related tax issues involving equities in the U.S. and world capital market. Leading investment banks, other financial service firms and publicly traded firms have looked to CCH Capital Changes for more than 75 years to accurately perform tax basis calculations and prepare tax returns; manage investment portfolios and provide investment planning advice; prepare estate planning reports; and manage equity assets in mutual funds.
“The IRS faces one of the same challenges that many taxpayers also face – accurately tracking the cost basis of security holdings necessary for accurate calculation of capital gains and losses,” David Stephens, vice president of securities and insurance for Wolters Kluwer Corporate and Financial Services explained in the statement announcing the relationship. “With access to CCH Capital Changes, the IRS has an accurate, independent way to verify the information taxpayers are providing about their gains and losses.”
Taxpayer over-reporting of basis, that is reporting the cost of the basis of a security is higher that it truly is in order to report lower gains, is estimated to cost the IRS several billion dollars annually in uncollected capital gains tax, according to a 2004 special report by Tax Analysts. Basis is the purchase price of a security adjusted for any corporate actions, such as splits or mergers, which result in a change to the cost basis of a security. As early as 1998, Tax Analysts suggested the IRS should track and audit a few thousand capital gains transactions to gather information regarding the causes and prevalence of both over- and under-reporting of gains. Verifying investment income is also an important part of the IRS’ continuing efforts to reduce the income tax gap.
The CCH brand has been an important tax law information and research resource for the IRS for decades. CCH Capital Changes was selected as a source of tax information as part of an existing contract with LexisNexis ® under the IRS’s Service-Wide Electronic Research Program which also includes such additional content as: CCH Standard Federal Tax Reporter, Federal Tax Service, CCH Estate and Gift Tax reporter, and CCH Master Tax Guide. The CCH Basis Factors ™ and fair market values, integrated into CCH Capital Changes, are calculated by CCH in accordance with the Internal Revenue Code.