Morgan Stanley Gave Some Wealth-Management Clients Wrong Tax Info -- 2nd Update

By Liz Hoffman 

Morgan Stanley said it had given a "significant number" of its 3.5 million wealth-management clients wrong information that caused them to underpay or overpay their taxes over the past five years.

In its annual regulatory filing Monday, the firm said it is in "advanced discussions" with the Internal Revenue Service to settle the matter at no cost to affected clients. It has set aside $70 million to cover the costs, which include paying back taxes owed to the IRS as well as reimbursing clients who overpaid.

"We are committed to making this right for our clients with minimal inconvenience to them," a Morgan Stanley spokesman said in a statement.

The problem occurred because Morgan Stanley's reporting systems in some cases generated the wrong cost basis for clients who owned a particular stock or bond, the firm said. That determines how much gain or loss is recognized when a security is sold, for example, which determines how much tax is owed.

The errors affected returns filed for tax years 2011 through 2016, meaning some clients will prepare taxes for an April filing deadline with incorrect information. Clients won't have to refile, and any settlement would cover this year's returns, a spokesman said.

About 90% of over- and underpayments involved amounts less than $300, and more than half involved amounts less than $20, a spokesman said.

He declined to say how many clients were affected. Morgan Stanley has about 3.5 million wealth-management clients serviced by more than 15,000 brokers, who generate nearly half the firm's revenue.

Write to Liz Hoffman at [e-mail]

(END) Dow Jones Newswires

February 27, 2017 19:25 ET (00:25 GMT)

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