38% of Taxpayers Report Inaccurate Capital Gains

Thirty-eight percent of taxpayers calculate capital gains incorrectly, a study of 2001 tax returns by the Government Accountability Office shows.

It's more difficult for taxpayers to calculate a correct figure for stocks than for mutual funds, the GAO found.

Two-thirds of taxpayers underreported capital gains incurred by selling stocks, and one-third overreported the figure in 2001. The GAO estimated that 8.4 million investors out of 21.9 million who reported capital gains in 2001 made a mistake.

The GAO's findings match with earlier reports from the Internal Revenue Service that American taxpayers fail to pay $17 billion in capital gains each year. The total figure, according to the IRS, is $290 billion.

What frequently trips taxpayers up is when stocks split into additional numbers of shares or are exchanged in a merger or acquisition.

A number of Congressmen have proposed legislation that would require brokerages and mutual fund companies to track the adjusted cost basis of stocks and report it both to individual investors and the IRS.

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Money Management Executive
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