Form 1099 deadline causes filing crunch

Growing number of corrections results in tax season angst

Jan 28, 2008 @ 12:01 am

By Sue Asci

For many investors, one of the big dilemmas this time of year is when to file their income taxes, particularly with the growing number of corrected 1099 forms from financial services firms that may be coming their way.

Since 2003, the number of forms that require an amended 1099 has about doubled to about 13%, from an average of 5% to 8% a year, according to the Securities Industry and Financial Markets Association, which conducted a survey of more than two dozen of its members during the 2006 tax season.

Many of these corrections are the result of dividends earned on foreign investments that may be reported well after the deadline.

These updated forms often cause confusion, and it can cost money to file amended returns.


The group surveyed, including some of the country's largest broker-dealers, sends out more than 35 million consolidated 1099s annually.

Financial services firms are required to distribute 1099 forms reporting dividends, interest and other income by Jan. 31.

Because of reporting laws and deadlines, many mutual fund and brokerage firms gather a variety of complex data at the same time. Some of the larger brokerage firms that may have to distribute several million 1099s want the data as early as possible.

"The volumes are so large, and it is a huge printing and production process," said Patricia McClanahan, managing director of SIFMA of New York and Washington. "Whenever the cutoff date is for that process, there is still information trickling in."

Bills last year in both the Senate and the House seeking to extend the Jan. 31 deadline failed.

The hope is that Congress will try again this year, said Ms. McClanahan, noting that SIFMA has been advocating on this issue for more than a decade.

Changing the deadline could make a big difference, she said, "short of changing the structural aspects of how taxes are calculated on mutual funds and [real estate investment trusts]."

With the volume of transactions and a variety of investment vehicles on the rise, the issue of amended 1099s isn't going away.


"More and more people are affected by it, especially with international investing, which has become a top-performing asset class," said Kathy Longo, principal at of Edina, Minn., which has $750 million in assets under management. "More people are putting money in there."

The question of when to file can be a challenge.

Each year, Charles Schwab & Co. Inc. of San Francisco distributes about 3 million 1099s, according to spokeswoman Sarah Bulgatz.

"We send out corrections as we receive them. The most important thing from a consumer standpoint is to wait as long as possible for filing," Ms. Bulgatz said.

"It is a high level of frustration, especially for those who want to get their taxes done before March or April," said Jeff Bernier, managing director of Roswell, Ga.-based TandemGrowth Advisors LLC, which has $75 million in assets under management. "Most of our clients end up filing later rather than earlier."

Many clients get their initial 1099 and automatically assume that is accurate.

"You really have to take a 1099 that you get at the end of January with a grain of salt unless you really know that no one will have to correct it," said Drew Tignanelli, president of The . The Lutherville, Md., firm doesn't disclose its assets under management.

Many investors are used to this issue, said Bob Cassel, director of tax services at Inc. of Columbia, Md., which has $200 million in assets under management. "Our clients have different issues with tax returns, and in many cases, they need investment reports that come out late in January," he said.

The deadline needs to be addressed, Mr. Cassel added. "The system is near the breaking point," he said.

Strategies vary in terms of dealing with the issue.

"We sit on the return until the end of March. We start calling mutual fund groups around the middle of March to see if they anticipate any changes," Mr. Tignanelli said.

"We've seen so many corrected 1099s that it doesn't make sense to file until the last minute," Ms. Longo said.

Some advisers doubt that moving the deadline will help, especially with international investments.

"Even if you change the deadline somewhere around the world, there will be someone who doesn't make that deadline," said F. John Deyeso, a financial planner with financial filosophy of New York, which has $2.5 million in assets under management.

Susan Asci can be reached at [email protected]


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