Form 1099 is a key federal tax reporting document. Banks, brokerage firms and mutual fund companies are among the financial services firms that use form 1099 to report income received by their clients, such as dividends and interest. Starting in tax year 2011, form 1099 also will be used to report clients’ capital gains income from securities sales. Currently, only the gross proceeds from such sales are reported.
Banks and mutual fund companies typically issue form 1099 to clients in January, but brokerage firms normally take until a mid-February deadline for them set by law. However, this deadline is largely illusory, since brokerage firms are not required to ensure that each form 1099 that they issue is final and completely correct by this time. Instead, it is commonplace for brokerage firms to revise a client’s form 1099 one or more time times in the same tax season, even after April 15, causing difficulties for both clients and tax preparers in completing their income tax returns.
Brokerage firms typically claim that 1099 revisions are caused by revised data feeds from the issuers of the securities on which they are reporting, or from mutual funds held in their clients’ brokerage accounts. However, as noted above, mutual fund companies typically issue their form 1099 a full month earlier, and rarely with any revisions, despite holding securities from the same issuers.
Brokerage firms’ problems with timely issuance of correct and final forms 1099 are an example of how financial advisors and their sales assistants are not in control of all the factors that influence client satisfaction. Instead, they are highly dependent on the quality of service provided by other functional areas in their firms, such as brokerage operations or information technology.