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Insofar as security transaction reporting is concerned, a significant change to the tax laws occurred in 2011.  The IRS has added a new Form 8949 for taxpayers to report capital gain and loss transactions.  Schedule D is used as a summary sheet and to compute the capital gains tax.  For securities that are purchased beginning in 2011, financial institutions must now report the taxpayer’s cost basis on Form 1099-B.Â
In a nutshell, what this means is that your investment or brokerage firm has already submitted the 1099-B to the IRS before you file your income tax return and all of the data will be compared to the information which you have entered in to your tax return. If there are errors, mistakes, omitted information, etc you will probably begin receiving correspondence from the Internal Revenue Service requesting that you provide an explanation for the variances. Additionally, brokerage firms do make errors. Review the data in the 1099-B as soon as you receive it and notify your brokerage firm immediately. Meet with your broker, resolve the discrepancies, request a corrected 1099-B (if appropriate) and incorporate the correct data in to your tax return. If necessary, file an amended tax return.
If you received a 1099-B from your investment firm or brokerage and BEFORE you make any “Capital Gain or Loss” entries in your tax return:
1.  Familiarize yourself with the new Federal Form 8949 (http://www.irs.gov/pub/irs-pdf/f8949.pdf ) and then
2. Read the fourteen pages of  instructions  for Form 8949 ( http://www.irs.gov/pub/irs-pdf/i1040sd.pdf )
Here is a summary of the reporting changes and requirements from the IRS website (http://www.irs.gov/instructions/i1040sd/ar01.html ):
“What’s New
The IRS has created a page on IRS.gov for information about Form 8949 and Schedule D at www.irs.gov/form8949. Information about any tax law changes or other new developments affecting Schedule D or Form 8949 will be posted on that page.
Form 8949.  Form 8949 is new. Many transactions that, in previous years, would have been reported on Schedule D or D-1 must be reported on Form 8949 if they occur in 2011. Complete all necessary pages of Form 8949 before completing line 1, 2, 3, 8, 9, or 10 of Schedule D. Instructions for how to complete Form 8949 are included in these instructions.
 Basis on Form 1099-B.  If you sold a covered security in 2011, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. This will help you complete Form 8949. Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the instructions for Form 8949, column (f).Â
 Adjustments to gain or loss on Form 8949.  In certain situations, you must put a code in column (b) of Form 8949 and report an adjustment to your gain or loss in column (g). See the instructions for Form 8949, columns (b) and (g).
 Short sales.  Some instructions for reporting short sales have changed. See the instructions for Form 8949, columns (c) and (d).
 Schedule D-1.   For 2011 transactions, Schedule D-1 is no longer in use.  Form 8949 replaces it.”