New requirements from the Internal Revenue Service on cost basis reporting could present both challenges and opportunities for advisors and broker-dealers, according to a white paper from Fidelity Institutional Wealth Services and National Financial.

Although the new requirements don’t take effect until Jan. 1, Fidelity is encouraging advisors and broker-dealers to begin the process of incorporating the new rules into their current tax reporting workflow.

Outlined in the Emergency Economic Stabilization Act of 2008, the new regulations, which will be phased in over three years, will require broker-dealers to report adjusted cost basis for “specific securities” on the annual IRS Form 1099-B. Broker-dealers will have to stipulate whether the holding periods of the disposed securities were short- or long-term. The regulations also establish requirements on how RIAs, broker-dealers and their end clients handle cost basis for transfer of assets, short sales, wash sales and corporate actions.

These new requirements could mean additional costs to RIAs and broker-dealers, as well as additional education for staff and clients.

“Certainly firms have to assess their internal systems,” said Robert Adams, an executive vice president at Fidelity Institutional. “For instance, organizations that have not supported wash sell will have to now incorporate that. I do believe that there are changes that need to be made to front-end systems.”

Adams said that Fidelity has been tracking costs basis for its customers through its tax lot accounting system for more than a decade. In the white paper, which was released this week by National Financial, Fidelity’s correspondent clearing business, it said that investors and tax preparers could face frustrations reporting gains and losses on both covered and non-covered securities when investors utilize more than one advisor or broker, or have assets at more than one financial institution.

Fidelity’s clients are encouraged to promote their services “by emphasizing how easy it is to work with your firm” because they already have the technology in place to prepare a consolidated gain/loss report.

“I think certainly that is a real opportunity we could experience,” Adams said.

The industry is still awaiting clarifications from the IRS on some of its new requirements, Adams said. This includes rules pertaining to options reporting and alternative investments.

“There is an ongoing dialogue between the IRS and the various industry lobby groups to make sure we have the right level of preparedness for what is being asked of us,” he said.