Morgan Stanley, in a Form 10-K filed with the Securities and Exchange Commission on February 27, disclosed that it had discovered errors in information reporting forms provided to the IRS for the years from 2011-2016. The erroneous data related to cost basis information reported to the IRS and retail brokerage clients.
Since 2011 brokers have been required to report to the IRS, as part of the Form 1099-B reporting, basis on securities sold during the year that were acquired after various dates depending on the type of security.
The disclosure, found in the “Other Items” section of “Management’s Discussion and Analysis,” reads as follows:
The Firm has identified operational issues that resulted in the reporting of incorrect cost basis tax information to the Internal Revenue Service (“IRS”) and retail brokerage clients for tax years 2011 through 2016. Most of our clients are not impacted by these issues. However, these issues have affected a significant number of client accounts. In the case of clients for whom the Firm has determined that there have been tax underpayments to the IRS as a result of these issues, the Firm is in advanced discussions with the IRS to resolve client tax underpayments to the IRS caused by these issues at no expense to our clients. In the case of clients for whom the Firm has determined that there have been tax overpayments to the IRS as a result of these issues, the Firm plans to notify them and to offer to pay them an amount equivalent to their overpayment to the IRS. The $70 million provision referred to above is based on currently available information and analyses, and our review of these issues is continuing.