(Bloomberg News) Taxpayers and accountants rushing to meet tomorrow's tax-filing deadline are struggling to adjust to a new law requiring brokers to report to the Internal Revenue Service what their clients paid for stocks.

The so-called cost basis reporting requirement, which in this tax-filing season applies only to stocks bought and sold in 2011, comes with new forms and tricky calculations causing some taxpayers to file for extensions so they can get the math right. Congress required brokers to report the basis so that taxpayers don't underreport their gains or overreport their losses.

"It's a pain in the neck," said Alan Straus, a certified public accountant in New York. "It just adds a tremendous amount of pages to the tax return."

Cost basis reporting will become more complicated for taxpayers and accountants for at least two years as additional types of assets fall under the rules. The requirement will cover mutual funds and most exchange-traded funds starting in 2012 and fixed-income instruments and options beginning in 2013.

Brokers, accountants and taxpayers are still getting used to the rules, which will eventually simplify and standardize basis reporting, said Stevie Conlon, senior director and tax counsel at Wolters Kluwer Financial Services. The firm provides software to brokers that calculates cost basis.

"Over the long run, it will get easier," she said. "Over the short run, it will probably feel harder."

Congress created the cost basis requirement in 2008 in the same law that authorized the Troubled Asset Relief Program. The requirement is part of the government's effort to reduce the estimated $385 billion annual net gap between taxes owed and taxes paid.

$6.7 Billion

When enacted, the provision was estimated to raise $6.7 billion over a decade, according to the Joint Committee on Taxation.

Before the rule, the IRS required information only about gross proceeds from sales of securities, which led to errors and fraud. Taxpayers had to calculate their cost basis and net proceeds, sometimes using information from their brokers. With the new format, the IRS will be able to detect whether taxpayers are overstating losses or underreporting gains because it will match brokers' reports on cost basis with taxpayers' returns.

Under the law, brokers report cost basis both to taxpayers and to the IRS. Conlon called the cost basis law the most challenging reporting rule since the IRS began requiring employers to inform the government of each employee's wages.

"It will be interesting to see how the IRS uses this," Straus said. "Will they go after the guy with 100 trades and two that don't match?"

Companies are spending an estimated $528 million implementing the regulations, said Arsalan Shahid, program director at the Financial Information Forum, a group that represents broker-dealers and other companies that provide financial data.

Brokers including Charles Schwab Corp., TD Ameritrade Holding Corp. and Vanguard Group Inc. started educating clients last year about the changes, the companies said.

Schwab sent about 1.8 million clients redesigned 1099-B forms with cost basis information this tax season, said Brian Keil, director of cost basis and tax reporting for the San Francisco-based company.

Trickier cases involve so-called wash sales, when taxpayers sell shares at a loss and buy within 30 days on either side of the transaction. In those instances, the loss is generally disallowed by the IRS and added to the cost basis of the repurchased shares.

Stock Splits, Spinoffs

Brokers also must adjust basis information to reflect stock splits, spinoffs, mergers, name changes and other corporate actions.

The task becomes more complicated when accountants must combine reports from multiple brokers onto never-before-used forms for tax filing.

The adjustments for wash sales are particularly difficult to understand, said Steve Rosenthal, a visiting fellow at the Tax Policy Center in Washington who said he had trouble reconstructing the calculations on his own forms.

"For me to try to verify that they had calculated it correctly, I couldn't do it without the help of another tax expert," said Rosenthal, a lawyer who had worked on the issue while in private practice.

The way financial companies are sending information on cost basis to investors isn't standardized, said Kathy Pickering, executive director of the Tax Institute and vice president of government relations at H&R Block Inc. The Kansas City, Missouri-based company is the largest U.S. tax preparer.

Some brokers are providing cost basis information on shares purchased before 2011 while others are providing it for those bought and sold last year, so investors looking at different statements may be confused or have trouble finding the information they need for their return.

The sales and basis information, reported on Form 1099-B, were required to be filed by Feb. 15, and some brokers received extensions from that date.

The flurry of late forms may cause some taxpayers to file for extensions, said Abe Schneier, senior technical manager at the American Institute of Certified Public Accountants in Washington.

Customers who used TurboTax and elected to have tax software electronically import their brokerage account information had the 1099-B information on their cost basis pulled in from financial companies for them, said Bob Meighan, a vice president at Intuit Inc.'s TurboTax.

"They're sort of being shielded from all the complexity that's going on behind the scenes," Meighan said. "We did have to write quite a bit of code to accommodate the new 8949 and all the exceptions that form is designed to handle."