Many financial institutions are significantly underestimating the impact that new cost-basis rules will have on them, according to a study by research group TowerGroup and technology vendor Scivantage.

The new rule is part of the Emergency Economic Stabilization Act of 2008 and mandates that institutions must use the “cost basis” of securities on Form 1099.

That form is already sent out to the Internal Revenue Service and to individual clients, but according to the report that was released Wednesday, there will be inconsistencies between what the firms are required to report and what individuals are required to report on their own tax forms. The changes will occur for tax year 2011 and failure to comply could result in compliance penalties, not to mention disgruntled employs.

TowerGroup said this will require firms to beef up customer service staffing and that most of them are “woefully unprepared to handle the inquiries” related to these changes.

“According to the findings, it appears the financial industry does not believe that servicing cost basis inquiries will be an enormous burden, with 74% of participants planning to staff less than 10 full-time equivalents to field inquiries and 85% believing they will spend less than $1 million on cost basis customer service annually,” said Sean Cunniff, research director of brokerage & wealth management at TowerGroup, in a press release accompanying the report.

Most firms have focused their energies on back-office aspects of cost-basis reporting but have given little thought to front-office needs and clients’ need for information, according to TowerGroup. “This is understandable given the difficulty of complying with the cost basis rules, but it does not change the fact that clients are going to need extensive help at tax time,” the report said.