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Cost-Basis Tax Reporting Gets Easier: DTCC and Networth Join to Offer New Tools
New York, November 29, 2006 - The Depository Trust & Clearing Corporation (DTCC) and NetWorth Services, Inc. have formed a strategic alliance to offer a new service that provides security issuers, transfer agents, broker/dealers, mutual fund companies and other financial services professionals with cost-basis information quickly, accurately and efficiently, solving a problem that has plagued the industry and its investors for years.
Investors need cost-basis information to properly report gains or losses when filing tax returns and in determining the unrealized gains or loss of a securities position. Researching cost-basis information, however, has traditionally proven to be difficult, time-consuming, and expensive.
The new service is Web-based and enables investors to obtain cost-basis information in a matter of minutes. The investor goes to the Web site of a transfer agent, issuer, mutual fund company or other financial services firm and clicks on the cost-basis link. This connects them to the DTCC/NetWorth Web site, where they can access cost-basis information by inputting a CUSIP number, the security name or ticker symbol of the security and the approximate date of purchase.
The service is available through different platforms and applications that will fit the needs of various financial services companies. The site also can be designed to look as if it is the Web site of the fund company, issuer or agent, or they can choose to host it as part of their own network.
"The cost-basis service automatically calculates the historical security changes caused by stock splits, mergers, dividend reinvestments and every other possible cost-basis adjustment, including security pricing history that dates back to 1925," said James Balbo, DTCC managing director, Asset Services. "It quickly retrieves financial information from its massive database, recreates a complete history of an individual security and then delivers the accurate, adjusted cost basis - all within a matter of minutes."
The Internal Revenue Service used the cost-basis service in the 2005 Tax Gap Report that identified $11 billion in underreported capital gains taxes, and major accounting firms are using it as a means of verifying and providing relevant cost-basis information reported on Schedule D and 1099 forms.
"This is just the kind of cost-basis service we've been looking to offer our customers," said Joan DiBlasi, senior manager for shareholder services at Aflac. "We get so many investor requests for help on cost-basis, and too often the search for this information turns into a long, drawn-out manual process. It's a time-consuming task. We need to make this information easily available to customers, and this service will help us do that."
Cost-basis information has always been a problem for investors, causing customer dissatisfaction with broker/dealers, issuers, transfer agents and other financial executives that investors rely upon. Cost-basis information is determined by a variety of factors that can affect the value of a security. The original purchase price and how it was purchased - through a dividend reinvestment plan, an employee stock option plan, or at a discount market price - has a direct impact on cost basis, as do corporate actions such as stock splits, mergers or spin-offs.
Investors often assume their transfer agent or issuer can supply them with the information. And while some firms provide a form of cost-basis reporting, there's no guarantee that the information is complete, accurate or up-to-date. Mutual fund companies, for example, get thousands of requests a year for tax information, with investors asking the companies to reconstruct the cost-basis history of a security. This process - which now can take hours or even days to complete - would be automated and streamlined by the new service, reducing costs for both the fund company and investor.
"This service will provide the industry with the cost-basis tool it has needed for some time," said Joseph Trezza, vice president, Product Management for DTCC. "We've met with many of our own customers in recent months to discuss the cost-basis issue and they all asked for the same thing - a cost-basis solution they could offer their customers that's fast, accurate and reasonably priced. And they wanted it sooner rather than later.
"We looked at available cost-basis services and quickly realized that NetWorth was far and away the best, and that it was a product we wanted to offer our customers," said Trezza. "Many of our customers, including financial institutions and other service providers, see the cost-basis solution not only as an important value-added service for present clients, but as a way to attract new customers."
"We're very excited about working with DTCC," said Nico Willis, chief executive officer of NetWorth. "Our cost-basis service is the most robust and comprehensive in the market today. This strategic alliance gives us the opportunity to introduce our service with DTCC - the corporation that has set the benchmark for excellence in providing standardized and automated solutions for the financial services industry. It is a perfect fit."
The Taxpayer Advocate Service, an independent office within the IRS that works to protect individual taxpayer rights, has reported that the cost-basis service "can reduce taxpayer burden by streamlining documentation of cost-basis calculations during audits and can create a reliable standard for taxpayers, preparers and the IRS."
Willis said that NetWorth developed the cost-basis product in direct response to countless inquiries from investors, institutions and financial service professionals needing a standardized, cost-effective and accurate cost-basis tool that can be customized to meet specific customer needs.
DTCC already offers a cost-basis service that automates and streamlines the transfer of that information when a customer moves a financial account from one firm to another, assuming the first firm had maintained that information. The Cost-Basis Reporting Service is a companion service to DTCC's Automated Customer Account Transfer Service (ACATS). ACATS enables banks and broker/dealers to submit, review and settle account transfers in an efficient, automated environment.
The new cost-basis service will be offered through DTCC Solutions LLC, a DTCC subsidiary.
About DTCC
The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for more than 2.5 million securities issues from the United States and 100 other countries and territories, valued at $31.2 trillion. Last year, DTCC settled more than $1.4 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.
About NetWorth Services, Inc.
NetWorth Services is a financial software company based in Phoenix, Arizona that is setting the industry standard for all cost-basis securities information. Recognizing the major challenges in an industry that is overwhelmed by compliance issues, NetWorth Services delivers innovative business Web applications and services to the financial services market, effectively providing solutions for some of the industry's most complex issues.