Reporting Capital Gains Tax – An Honor System?
Hi guys, I have a question about capital gains tax on securities sales for which I have not been able to find a concrete answer anywhere. I don’t know much about taxes, tax law or IRS regulations and procedures. However, from the little I do know – and please correct me if I am misinterpreting the below described tax issues – it seems to me that in reporting capital gains or losses regarding securities, there is a lot of room for fraud. Let me try and explain what I mean. If one works for an employer, his wages (W-2 form) are reported to the IRS by the person’s employer. It is very straight forward. Even the unreported amount of tips (for certain professions) can be estimated by the IRS from an established table of averages. When it comes to capital gains, however, the broker reports to the IRS only the proceeds from a person’s securities sales (form 1099-B) without any information about the basis price and the consequent amount of capital gains or losses on those transactions. In othe
