[Congressional Record Volume 152, Number 32 (Tuesday, March 14, 2006)]
[Senate]
[Page S2128]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAYH (for himself, Mr. Obama, Mr. Carper, and Mr. Kerry):
  S. 2414. A bill to amend the Internal Revenue Code of 1986 to require 
broker reporting of customer's basis in securities transactions, and 
for other purposes; to the Committee on Finance.
  Mr. OBAMA. Mr. President, I rise to speak in favor of a bill I am 
proud to introduce today with Senators Bayh, Kerry, and Carper to help 
close the tax gap by improving the reporting of capital gains income. 
This bill requires brokerage firms and mutual fund companies to track 
and report the adjusted cost basis of their clients' stock, bond, and 
mutual fund investments.
  This bill is a simple, commonsense solution to a serious problem. 
Many taxpayers have a hard enough time filing their taxes. One of the 
most complex parts of an individual's tax return is the schedule for 
capital gains income. And what makes capital gains particularly 
difficult is the challenge of figuring out the adjusted basis of a 
security that has been sold.
  Many taxpayers do not have the proper records or they don't know how 
to calculate adjusted basis for a stock that has split or been 
exchanged as part of a company's merger or acquisition. And right now, 
the IRS does not have the ability to monitor the accuracy of taxpayer 
calculations. As a result, there is a risk of error or fraud. In some 
cases, taxpayers may end up paying too much in taxes. More often, they 
report too little income and pay too little in taxes.
  In 2001, the IRS estimated that underreporting cost the Treasury $11 
billion annually. Today the loss is even greater.
  Because the IRS fails to collect these funds, the taxes that the rest 
of us have to pay are greater than they should be. Most people pay 
their taxes honestly and follow the law to the best of their ability. 
But a small number of tax frauds--who often owe great amounts of 
taxes--cheat the system. And it's hard now for the IRS to stop them.
  This bill makes it easier to stop them and it helps reduce the amount 
of Federal tax dollars that the IRS fails to collect each year. 
Brokerage firms and mutual fund companies will be required to keep 
track of a taxpayer's cost basis and to report that information to the 
IRS. This will make it easier for honest taxpayers to calculate their 
taxable capital gain, and harder for dishonest ones to lie about it. 
Based on information from the Taxpayer Advocate, reporting to the IRS 
can improve compliance of capital gains reporting from an estimated 50 
percent today to 90 percent.
  Fortunately, this new reporting requirement will not pose an undue 
burden to the financial firms affected. First, the firms will have 
plenty of time to put the necessary systems in place since the 
reporting requirement will not take effect until 2009, and then will 
only apply to securities acquired starting in 2008. Second, technology 
has made tracking by financial firms simple and efficient. More than 80 
percent of all retail accounts already subscribe to a national 
reporting service for transferring basis information at a nominal cost 
per account. Finally, in cases where it is impossible to track basis, 
the Treasury Secretary may develop regulations to require alternative 
information.
  It is estimated that $345 billion of Federal taxes goes uncollected 
each year. This bill doesn't solve that full problem, but it is a step 
in the right direction. It reduces the Federal deficit without raising 
taxes or cutting spending. It simplifies the tax filing process and 
reduces the chance of error or fraud. It applies what we know about the 
benefits of automatic reporting to the IRS--which is required now for 
wage income--to capital gains income as well.
  This bill makes sense. It's good policy. I urge my colleagues to join 
me in supporting it and to helping to improve our tax code.

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