The Emergency Economic Stabilization Act of 2008 includes new cost basis requirements for brokerage firms, expanding the current reporting on IRS Form 1099-B. As of January 1, 2011, firms such as TD AMERITRADE will be required to report an investor’s adjusted cost basis, gross proceeds, and the holding period when certain securities are sold. Currently, such firms only report gross proceeds from the sale of a security.
The goal of these new requirements is to ensure the accurate reporting of investors’ gains and losses on their tax filings. This should assist you with your year-end tax preparation.
The new 1099-B reporting requirements will be implemented by security type in phases over a three-year period. The details are as follows:
• Phase I – will apply to equities acquired on or after January 1, 2011, excluding those acquired via a dividend reinvestment program (DRIP) and regulated investment companies (RIC stocks).
• Phase II – will include mutual funds, RIC stocks and equities enrolled in DRIP acquired on or after January 1, 2012.
• Phase III – will include fixed-income, options, warrants, rights, derivatives and commodities acquired on or after January 1, 2013.
TD AMERITRADE Institutional is taking steps to meet the new reporting requirements of this law and to facilitate a smooth adjustment for you. These improvements will be available by the end of this calendar year and will include:
• Enhanced technology designed to efficiently identify and track cost basis information. You will start seeing these improvements by the end of this calendar year:
o The default tax lot release method will be “first-in, first-out” for equities, and average cost for mutual funds and for equities enrolled in DRIP.
o You will be able to select an alternative tax lot identification method (such as “last-in, first-out,” high cost or low cost) as a firm default or when you enter the trade. You will also be able to select a different lot-specific identification method starting the day after execution; however, it must be done prior to trade settlement.
o Please note that currently the alternative tax lot identification method is only available by contacting us.
• TD Ameritrade is an active participant in several industry-wide working groups, such as the Securities Industry and Financial Markets Association (SIFMA) and the Financial Information Forum (FIF), to gather and share information about the cost basis regulation as it becomes available.
More information about this new requirement will be forthcoming in early October 2010. This will include instructions on how to update cost-basis information for uncovered securities (purchased prior to January 1, 2011). Please watch for further announcements at that time.