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Morgan Stanley Admits Giving Clients Wrong Tax Info

February 28, 2017

Many wealth management clients at Morgan Stanley have been overpaying or underpaying their taxes since 2011 as a result of the wirehouse’s tax-reporting errors, the Wall Street Journal reports. But more than half of them were only off by less than $20, a Morgan Stanley spokesman tells the paper.

The company is in discussions with the Internal Revenue Service to address any underpayments, according to Morgan Stanley’s annual regulatory filings cited by the Journal. The firm also plans to reimburse clients who overpaid taxes, the paper writes. Morgan Stanley has sat aside $70 million to settle the matter, which increased its non-compensation expenses correspondingly, according to the Journal.

Apparently Morgan Stanley’s reporting system sometimes generated an incorrect cost basis for its clients’ stock or bond positions, which threw off capital gains tax calculations following the sales of the securities, the paper reports. The errors affected a “significant number” of the firm’s 3.5 million wealth management clients for tax years 2011 through 2016, according to the paper. But around 90% of the under- or overpayments were less than $300 while more than half were less than $20, a Morgan Stanley spokesman tells the Journal. The spokesman declined to reveal the number of clients affected.

Some of the firm’s clients will have incorrect information for their 2016 taxes, which have an April filing deadline, the paper writes. But these clients will not have to refile, the spokesman tells the Journal, as Morgan Stanley’s settlement will include returns filed this year.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.