A lot of investors are going to get their pesky 1099 tax-reporting forms—the ones that report dividend and interest income—late this year. USA Today reports that at least five firms—Morgan Stanley, Merrill Lynch, Wachovia Securities, Edward Jones and Raymond James—are delaying the mailing of 1099s to clients in order to minimize the kinds of errors that have forced them to send out revised forms in recent years. In fact, they’ve gotten a month-long extension from the IRS on the usual Jan. 31 deadline.
The problem seems to be that financial firms must now list tax-exempt interest income from dividends and bonds and note how much of it is subject to the alternative minimum tax. This means mutual funds will have to do additional analysis before they send the information needed for the forms to brokerages.
But late 1099s are not exactly a new problem—one Merrill broker says it happens every year. But he also says it’s not a very big deal—he doesn’t get any complaints from clients. “Last year, Merrill had a tremendous amount of really late 1099s for certain closed-end funds and stuff,” says the broker. “It doesn’t affect my practice, because I have no control over it. There’s nothing I can do about it.”
Corrected 1099s jumped to 14 percent in 2003 from a historic level of 5 percent to 8 percent. That was the year that President George W. Bush cut dividend and capital-gains tax rates.