The Honorable Mark W. Everson

Commissioner

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

Dear Commissioner Everson:

The recently published 2005 instructions for Form 1040, Schedule D impose a significant burden on individual taxpayers when they report capital gains and losses. Specifically, the new instructions require taxpayers filing Schedule D to list each capital gain or loss transaction on a separate line. In addition to creating this reporting burden for taxpayers, the AICPA believes this requirement is inconsistent with current IRS electronic filing information presentation options and thus, generally discourages the electronic filing of individual tax returns.

We are troubled by the language on pages D-5 and D-6, under "Specific Instructions, Lines 1 and 8:"

You must enter the details of each transaction on a separate line. If you have more than five transactions to report on line 1 or line 8, report the additional transactions on Schedule D-1. Use as many Schedules D-1 as you need. Enter on Schedule D, lines 2 and 9, the combined totals from all your Schedules D-1.

Do not enter "see attached" and summary totals from an attachment in lieu of reporting the details of each transaction directly on Schedule D or D-1. (Emphasis added.)

We acknowledge that the IRS needs access to sufficient information about capital gain and loss transactions to ensure proper compliance by taxpayers. However, for the many taxpayers who are involved with hundreds (and in some cases, thousands) of security sales transactions during the course of a calendar year, the time required to manually list each individual capital gain and loss transaction would create a significant burden and in the case of taxpayers using paid preparers, unnecessarily raise the overall cost of preparing the return. We question whether this increased burden in preparing the tax return is warranted in a business environment in which taxpayers routinely receive year-end tax reporting statements from brokerage firms. These statements, which could alternatively be appended to the tax return, traditionally include such calendar-year information as dividends and interest income; distributions; and all security transactions reported on Form 1099-B, including a summary of the gross proceeds from those security sales.

Tax-return preparers have traditionally reported the summary totals found on these year-end brokerage statements directly onto the taxpayer's Form 1040, Schedule D, with a notation to "see attached" brokerage statement. This reporting method, in our opinion, has proved responsible and effective from both a compliance and tax administration perspective, as well as highly effective in controlling the cost of preparing the return itself.

The AICPA believes that disclosing summary totals for security transactions, coupled with attaching brokerage statements to the Form 1040 promotes compliance. Even if retaining the brokerage statements internally within the Service (such as in a PDF or other electronic format) is deemed to be ineffective, the IRS should allow taxpayers and practitioners to provide summary information on the Schedule D. Especially with respect to the Form 1040 e-file platform, we believe more individual taxpayers would become interested in e-filing if the Service would explicitly state that the agency will accept e-filed returns that contain summary transaction information on Schedule D.

In fact, the IRS's current policy position with respect to Form 1040, Schedule D reporting is inconsistent with the capital gains and losses reporting requirement the Service has announced for large corporations. For example, the Service does permit the submission of Schedule D (1120 and 1120S), capital gains and losses information, in summary form in XML format as part of the mandatory large corporate e-file program. According to the IRS website, "Corporations that use [summary form] . . . procedures are agreeing that transactional data details will be made available upon request." (See Tax Year 2005 Directions for Corporations Required to e-file, Section 3-Transactional Data-Available on Request, emphasis added.)

The IRS also permits large corporations (in the mandatory e-file context) to provide summary information with respect to Form 8873, Extraterritorial Income Exclusion; and Form 4797, Sale of Business Property. Moreover, the Service permits individual and corporate taxpayers to use summary information to compute "Modified Accelerated Cost Recovery System" (MACRS) depreciation on Form 4562, Depreciation and Amortization. Generally, taxpayers may elect to "group" assets according to one or more general asset accounts, with the assets in each generalized account being depreciated as a single asset.

The AICPA is interested in discussing our views with you regarding our recommendation that the IRS permit the reporting of capital gains and losses transactions in a summary form on Form 1040, Schedule D. We will be contacting the Service after January 1, 2006 to begin these discussions. In the mean-time, if you have any questions, please contact me at tpurcell@creighton.edu; James E. Brennan, Chair of the AICPA IRS Practice and Procedures Committee, at james.brennan@ey.com; or Benson Goldstein, AICPA Technical Manager, at bgoldstein@aicpa.org.

Sincerely,

Thomas J. Purcell, III

Chair, AICPA Tax Executive Committee