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View Full Version : Interesting Yahoo Quiz on Capital Gains


Secretariat
02-23-2005, 11:38 AM
How much is the inaccurate reporting of capital gains by individuals expected to cost the government in lost taxes over the next 10 years?

According a recent study published in the magazine, Tax Notes, a tax policy journal, the federal government stands to lose 250B USD in income taxes over the next 10 years as individual taxpayers overstate their cost basis in investments to minimize their taxes. The study, authored by Professors Joseph Dodge from Florida State University and Jay Soled from Rutgers University, reveals many of the reasons why taxpayers sometimes overstate their cost basis in investments ranging from mutual funds to artwork and real estate.

While sometimes the overstatement of cost basis is a result of a conscious decision to cheat on a tax return, the authors of the report argue that the IRS codes surrounding cost basis actually encourage inaccurate filings. According to Dodge & Soled, cost basis rules are, "arcane, complex and opaque, only the most civic-minded taxpayers will take the time or incur the expense to establish the tax basis of investments sold or otherwise disposed of. While many brokerage firms will provide old purchase records, determining the cost basis of long term investments can be very difficult for the average investor, forcing them to estimate their basis. In addition, professional tax return preparers are under no obligation to ask taxpayers to produce documentation to substantiate a taxpayer's claim of cost basis.
Dodge & Soled believe that a handful of amendments to the existing code would help simplify the process and help ensure that the government gets their fair share of capital gains taxes. The solutions proposed by the professors include:

Establishing a sanctionable duty for taxpayers to keep more accurate tax basis records.

Imposing meaningful third-party basis reporting requirements.

Requiring tax return preparers to obtain the records to substantiate a taxpayer's basis claims.