It’s been well reported that the new cost-basis reporting rules would wreak havoc on the 2011 tax filing season. As recently as last week, some custodians and brokerage firms announced they would be issuing corrected 1099-B Proceeds from Broker and Barter Exchange Transaction forms. While brokers had to issue 1099s to investors by February 15, they can report to the IRS as late as May with extensions. Until the broker files with the IRS, your 1099-B can change.

Many accountants are recommending filing an extension if your own records do not match the cost basis data initially provided from your custodian. Filing an extension does not automatically put you on an audit list; however, significantly mismatched transaction data could garner IRS scrutiny.

To request an automatic six-month extension, file Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. First properly estimate your 2011 tax liability using the information available to you, then file the request by April 17, 2012. However, do not make the mistake of assuming that the extension gives you additional time to pay any taxes due. A good faith estimate of your tax due should be paid on April 17; otherwise, you may be subject to penalties and interest.

If you have already filed your return and you receive a corrected 1099-B from your broker and you owe more tax on your transactions, it may be better to wait until the IRS sends you a letter. The IRS’ document matching computers are designed to catch the discrepancies between what is reported to the IRS — in this case, the information from your broker — and what you report on your return.

While the IRS notice concerning any additional taxes due is considered a “correspondence audit,” waiting for the letter does not increase your chances of a more in-depth audit. If you agree with the audit findings, you simply sign the letter and pay the additional tax. Besides, the cost and time to file an amended return is often far greater than the interest the IRS will charge on the underpayment. However, if your corrected 1099 results in a significant underpayment on your part, you will want to file an amended return as soon as possible to minimize any penalties or interest due.

William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The MDJ will periodically publish columns from KSU business faculty.