Understanding Your Forms
1099/Year-End Summary
A Guide to Your Statement
We are pleased to provide you with consolidated information returns on Forms 1099 and Year-End Summary for
calendar year 2010. This document contains certain tax information which Citigroup Global Markets Inc. (“Our
Clearing Broker”) is required to report to both you and the Internal Revenue Service (IRS). Review the enclosed tax
document carefully; retain it for reference when preparing your federal income tax return for 2010.
The Forms 1099 generally contain aggregate information about payments made to your account in 2010. These
figures have been derived from the detailed information that appears on your Year-End Summary, which is provided
for your convenience. Neither Morgan Stanley Smith Barney LLC. nor Our Clearing Broker are in the business of
giving tax advice. If you have any tax questions, please consult your tax advisor.
Your Forms 1099 and Year-End Summary
This pamphlet is provided to help you better understand your 2010 Form
1099 and Year-End Summary. The official IRS instructions are also provided
on the enclosed “Instructions for Recipients of Forms 1099.” Other IRS
publications referred to in the instructions are available through your local
IRS office and on the Internet at www.irs.gov.
We suggest that you read this pamphlet carefully. It explains tax reporting
requirements, the methods used to determine the reported income from your
investments and the way the IRS treats certain investments. If your account
is in the name of a corporation or other entity similarly exempt from Form
1099 reporting, or if you had no reportable income for 2010, the enclosed
document consists of only a Year-End Summary. The sections of this
pamphlet that discuss Forms 1099 may therefore not be relevant to you.
After you have reviewed this pamphlet, compare your Forms 1099 alongside
your Year-End Summary. The total figures shown in each Box of your Forms
1099 are reported in detail elsewhere. For example, the amount reported in
Box 1 (Form 1099-INT Interest Income) comprises earnings on securities
identified in “Details of Form 1099 Reported Interest Income.” The
Year-End Summary will not be filed with the IRS. For your convenience, the
Year-End Summary can be differentiated from the Forms 1099 by a border
that reads “2010 Year-End Summary.”
If you have questions, please call your Financial Advisor or our Client Service
Representatives at the toll-free number listed on the front page of the
enclosed document.
The enclosed Forms 1099 include the following reportable amounts, if
applicable to your account.
•Dividends and distributions, including qualified dividends and long-term
capital gain distributions
•Interest income, including accrued interest received on the sale of certain
debt instruments
•Interest on U.S. Treasury obligations
•Foreign tax paid
•Investment expense/organizational expense
•Accrued Original Issue Discount income
•Gross proceeds from any sales, including short sales, redemptions
and tenders
•Federal income tax withheld
•Royalty trust payments
•Payments in lieu of dividends
•Contract adjustment payments, consent payments and other
miscellaneous income
Please Note: The information on your Forms 1099/Year-End Summary
reflects your personal investment activity. As a result, some parts of this
pamphlet may not apply to your account. To find information about your
investments, please refer to the section headings. Note that each section is
presented in the same order as in your Forms 1099/Year-End Summary.
Important Notes About Your Forms 1099
and Year-End Summary
Reporting on Tax-Exempt Interest
The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”),
enacted May 17, 2006, contained a requirement that payors report
tax-exempt interest on Form 1099 to you and the IRS. Tax-exempt
interest is reported in the same manner as interest paid on taxable debt
obligations. The aggregate amount reported for the calendar year includes
periodic payments of tax-exempt interest, accrued interest on the sale of a
tax-exempt bond and exempt-interest dividends from mutual funds. This
amount is reported in Box 8 on the Form 1099-INT.
In addition, Box 9 is used to report the portion of the tax-exempt interest
that is derived from private activity bonds. This interest is subject to the
alternative minimum tax (AMT). Our Clearing Broker has used their best
efforts to determine the amount of tax-exempt interest that is subject to
AMT. While this information has been obtained from sources considered
reliable, no guarantee can be made as to its completeness or accuracy.
At present, tax-exempt original issue discount (OID) income is not
required to be reported on Form 1099. However, to the extent Our
Clearing Broker was able to obtain rate information on bonds issued with
tax-exempt OID, it is shown in the Year-End Summary under the heading
“Details of Tax-Exempt OID 2010.” Lastly, backup withholding applies
to tax-exempt interest paid unless you have provided your taxpayer
identification number (TIN) in the manner required. If you are unsure
about whether you need to provide your TIN on a Form W-9, please
contact your Financial Advisor.
Note to holders of REMICs, Mortgage strips, CMOs and other
Collateralized Debt Obligations: Please read this prior to filing your
2010 income tax return.
The IRS has issued regulations concerning Form 1099 reporting of interest
and Original Issue Discount (OID) income from regular interests in Real
Estate Mortgage Investment Conduits (“REMICs”) and other
Collateralized Debt Obligations, such as CMOs.
To allow issuers and nominees sufficient time to prepare Forms 1099-OID
and statements of additional information, the regulations extend the date
for furnishing such statements to holders until March 15, 2011.
If you hold these types of securities in your account, you will be receiving
an amended Form 1099, which we will mail to you on or before March
15, 2011 with the required information.
Note to holders of Widely Held Fixed Income Trusts: Please read this
prior to filing your 2010 income tax return.
The IRS has issued regulations concerning the Form 1099 reporting of
income, expenses, and credits and other information from widely held
fixed income trusts (“WHFITS”). A WHFIT is a U.S. investment trust
that holds a fixed pool of assets and is classified as a grantor trust for
federal income tax purposes. Each investor owns an undivided pro-rata
interest in each asset in a grantor trust. The tax character and source of
the income, expenses and credits received/paid by the trust passes
through the investors. To allow nominees sufficient time to collect the
required information from issuers and to prepare Forms 1099 along
with a written tax statement of additional information, the regulations
extend the date for furnishing such statements to holders until March
15, 2011. If you hold these types of securities in your account, you will
be receiving an amended Form 1099, which we will mail to you on or
before March 15, 2011 with the necessary information.
The figures on the Forms 1099/Year-End Summary may differ
from your monthly statements.
IRS requirements and the nature of our reporting responsibilities can result
in certain unavoidable differences between your Forms 1099 and your
monthly statements. For example, some taxable income distributions, such
as those from mutual funds, are declared in 2010 but paid to you in
January 2011. These distributions have been reported, as required, with
your 2010 income. To identify these securities, refer to “Details of 1099
Reported Dividends and Distributions” on your Year- End Summary.
Citigroup Global Markets Inc. as Payer
When you file your tax return, list Citigroup Global Markets Inc. as payer
on Schedule B of IRS Form 1040 for all dividends and/or interest received
through your Morgan Stanley Smith Barney LLC. account.
Special Messages
Please note any messages that may appear on the first page of your Forms
1099/Year-End Summary.
Determining Original Cost
The Forms 1099 do not provide the original cost information for the
transactions reported to the IRS.
IMPORTANT: The original cost of a security is not always your tax basis for
use in calculating gain or loss resulting from the sale of the security. Tax
treatment of items such as bond premiums, return of capital distributions,
returns of principal or accrued OID will affect the calculation of your tax basis
on certain securities. Seek the advice of your tax advisor on these matters.
Federal Income Tax Withheld
Clients who have not furnished a taxpayer identification number (usually a
Social Security number) or proper certification to the payer of dividends or
interest become subject to backup withholding at the rate of 28% on
certain payments. This amount is charged to your account and paid to the
IRS as required by law. Backup withholding is also required if the IRS
notifies us that a taxpayer has under-reported dividends or interest on a
prior-year federal income tax return.
State Reporting — Municipal Income
Under state tax laws, Our Clearing Broker is required to report certain
investment Information for any client whose primary address is in the state
of California, Connecticut, Minnesota, Montana, New York or Rhode
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Island. If you reside primarily in one of those states, you may be
required to report income derived from municipal bonds outside your
state. Please check with your tax advisor. Additionally, you should be
aware that most states require that we file certain information returns,
and therefore much of the information reported to the IRS on Forms
1099 is also reported to the taxing authorities of the relevant states
either directly by Our Clearing Broker, or indirectly by IRS through its
Combined Federal/State Filing Program.
Important Tax Information Regarding Your Mutual Funds
You can find tax information for the mutual funds you own at the
following web address: https://www.smithbarney.com/tools/taxcenter/
Understanding Your Forms 1099
Form 1099-INT — Interest Income 2010
This section contains your total reportable interest income, including
any accrued interest received. This information is derived from figures
that can be found in “Details of 1099 Reported Interest Income” on your
Year-End Summary. Interest on U.S. Treasury obligations is reported in
Box 3. All other taxable interest received is included in Box 1. Any
amount shown in Box 5 represents your share of investment expenses
that are included in Box 1.
Tax-Exempt Interest
Federally tax-exempt interest (including exempt-interest dividends from
mutual funds) is reported in Box 8. You should include this amount on
line 8b of Form 1040 or Form 1040A. The portion of the amount in Box
8 that is attributable to certain private activity bonds is reported in Box 9
of Form 1099-INT. This portion is subject to the alternative minimum tax
(AMT). See IRS Instructions for Form 6251 (Alternative Minimum
Tax — Individuals) for information on how to report and calculate AMT.
To Holders of Unit Investment Trusts Organized as Taxable
Grantor Trusts
If you own an interest in a Unit Investment Trust that is organized as a
Taxable Grantor Trust, the IRS requires that your allocable share of all
income received by the Trust during the year be reported to you. The
amount reported on your Forms 1099-INT or Form 1099- DIV
(depending on whether the Trust generates interest or dividend income)
may be greater or less than the amount actually distributed to you
during the year. Due to both the allocation of investment expense/
organizational expense and year-end income adjustments made by the
Trust, actual cash distributed will vary from reported taxable income.
Income is reportable in the year it is received by the Trust, not in the
year it is distributed to unit holders.
Our Clearing Broker must also include as a part of taxable income your
allocable share of the amount used to pay Trust expenses; expenses of the
Trust are deducted from the overall Trust income prior to the
distribution of income to unit holders. In order to report taxable income
to you correctly, your reported income was increased by an amount
representing your share of Trust expenses.
In addition, if your Trust consists of Original Issue Discount (OID)
securities (such as zero-coupon bonds) which defer payment of income,
the accrued OID is reported on Form 1099-OID.
Please note that investment expenses may be deductible if you choose to
itemize your deductions on Schedule A (Form 1040). However, to claim
this deduction, your total miscellaneous expenses (Line 24 on Schedule A)
must exceed 2% of your adjusted gross income. Amounts reported to you as
Organizational Expenses are not deductible in this manner. These amounts,
instead, result in an adjustment to your basis in the units. See IRS
Publication 550 for more information on investment expenses.
Treasury Bills and Other Short-Term Discount Securities
Income from short-term original-issue discount securities — for example,
Treasury bills with a maturity of one year or less that were redeemed in
2010 — is reported as interest on your Form 1099-INT. The interest
amount is calculated as the difference between your cost and the
redemption value of the security. If your purchase price was not on our
records, the cost was calculated in accordance with IRS Publication 1212.
If this amount differs from your records, you may adjust this figure on
Schedule B of IRS Form 1040.
Form 1099-DIV — Dividends and Distributions 2010
This section of your Forms 1099 reflects your total taxable dividends and
other distribution information that is being reported to the IRS. It was
derived from figures that can be found in the “Details of 1099 Reported
Dividends and Distributions 2010” section of your Year-End Summary.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”)
reduced the maximum rate of federal income tax for individuals with net
long-term capital gains. The maximum rate of federal income tax for
individuals with net long-term capital gains is 15, and 5 percent. Note, in
tax years beginning after 2007, the 5 percent maximum rate on net
long-term capital gains is reduced to 0 (zero) percent. Therefore, net
capital gains are not taxed if your regular tax rate that would apply is lower
than 25 percent. The one-year holding period requirement for long-term
capital gains remains unchanged. In addition, the lower capital gains rate
also applies to qualified dividends received by individuals on or after
January 1, 2004.
Qualified dividends means dividends paid by domestic corporations and
qualified foreign corporations. To qualify for the maximum 15 percent tax
rate, the taxpayer must hold the stock to which the dividend relates for a
period of more than 60 days. The 61-day holding period must be within
the 121-day period that begins 60 days before the ex-dividend date.
Further, the taxpayer’s holding period is suspended for any day the
taxpayer’s risk of loss is diminished (i.e., hedged). If the taxpayer is under
an obligation to make a related payment on the stock (e.g., when the
taxpayer has entered into a short sale on the same stock), the dividend
income is not a qualified dividend. Please also note that if you treat
income as a qualified dividend, it may not be treated as investment
income for purposes of determining the amount of deductible investment
interest. This may limit an individual’s ability to deduct margin interest. A
foreign corporation is a qualified foreign corporation if it meets one of the
following tests: (1) it is incorporated in a U.S. possession, (2) it is eligible
for benefits of a comprehensive income tax treaty with the United States
that the Treasury and IRS determine is satisfactory for this purpose and
that includes an exchange of information program, or (3) the stock with
respect to which the dividend is paid is readily tradable on an established
securities market in the United States. The list of satisfactory treaties was
published in Notice 2003-69. An established securities market in the
United States includes any national stock exchange that is registered with
the Securities and Exchange Commission and the Nasdaq Stock Market.
It does not include the OTC Bulletin Board or the Pink Sheets.
Finally, dividends are not qualified dividends if they are paid by a passive
foreign investment company.
The total amount of ordinary dividends paid (or deemed paid) to your
account in 2010 is shown in Box 1a of Form 1099-DIV. This total
includes both qualified and nonqualified dividends. The portion of the
dividends shown in Box 1a that may be eligible for the maximum 15
percent rate for qualified dividends is reported in Box 1b. The amount
shown in Box 1b relates to securities we believe are equities that pay
qualified dividends. In preparing your income tax return, you or your tax
advisor will need to determine whether the holding period and other
requirements are met to qualify the income for the maximum 15 percent
tax rate. See the instructions to Form 1040/1040A for more information
on how to determine the amount of qualified dividends.
REIT’s net capital gains, and are taxable at the rates applicable to long-term
capital gains, regardless of the length of time that you have held your shares
in the fund or REIT.
Any Unrecaptured Section 1250 Gains, which may be distributed by
REITs, are reflected in Box 2b of Form 1099-DIV. Box 2c shows the
portion of the amount in Box 2a that is section 1202 gain from certain
small business stock that may be subject to a 50 percent exclusion. Box
2d shows the amount of distributions of gains subject to the 28 percent
maximum tax rate. Such gains generally arise from the sale or exchange
of collectibles.
Distributions of short-term capital gains are included in Box 1a of Form
1099-DIV, and are usually taxable as ordinary income rather than as
qualified dividends. However, our “Details of 1099 Reported Dividends
and Distributions 2010” does separately identify short-term capital gain
distributions and dividends for informational purposes.
Note: Our Clearing Broker is required to report on Forms 1099-DIV all
distributions of capital gains, including those from mutual funds which
normally distribute tax-free income.
How to Report Capital Gains Distributions from Mutual Funds
Long-term capital gains that are reported to you in Boxes 2a, 2b, 2c or 2d of
your Form 1099-DIV should be reported on Form 1040, Schedule D. But,
if no amount is shown in Boxes 2c-2d and your only capital gains and
losses are capital gains distributions, you may be able to report the amounts
in Box 2a on line 13 of Form 1040 (line 10 of Form 1040A), rather than
on Schedule D (Form 1040). See the Form 1040 or 1040A instructions.
The amount in Box 2a on Form 1099-DIV should be reported on Form
1040, Schedule D, line 13. Report the amount shown in Box 2b on the
Unrecaptured Section 1250 Gain Worksheet — Line 19 in the Schedule
D instructions (Form 1040). If required, use the amount shown in Box 2d
when completing the 28 percent Rate Gain Worksheet — Line 18 in the
instructions for Schedule D (Form 1040).
Any amounts in Boxes 2b, 2c or 2d require special calculations or treatment.
Please refer to the IRS’s “Instructions for Schedule D, Capital Gains and
Losses” or your tax advisor.
Income from Some Dividends May Be Reclassified
The sufficiency of earnings and profits that determine the tax character of
dividends is sometimes not finalized until well after the close of the
company’s tax year and after the time Forms 1099 must be mailed to you.
Distributions initially reported as taxable dividends may later be reclassified
as nondividend distributions (Box 3) or capital gains (Box 2a). For
example, certain mutual funds, real estate investment trusts and public
utilities may change the tax nature of their distributions.
Therefore, the security issuer or Our Clearing Broker may, at a later date,
notify you of such a reclassification.
Our Clearing Broker makes its best effort to report up-to-date information
on your Forms 1099. However, they cannot be held responsible for any
cost incurred due to the late reclassification of income by the issuer or its
paying agent. If your account contains any securities of any fund or REIT
that Our Clearing Broker believes will reclassify the tax character of the
distributions, they have enclosed a notice identifying those securities.
Exempt-Interest Dividends
Please note that exempt-interest dividends paid by mutual funds are not
reported on Form 1099-DIV. Rather, they are shown in Box 8 of Form
1099-INT.
Dividends on Foreign Securities
Mutual Funds and REITs
Dividends received by U.S. residents from foreign corporations are
reported to the IRS in the gross amount, that is, before deduction of any
foreign taxes withheld by the foreign payer.
Total capital gain distributions (long-term) are reported in Box 2a of Form
1099-DIV. These distributions reflect your share of a mutual fund’s or a
Generally, taxpayers have the option to claim foreign income tax withheld
as either a deduction or a credit against their federal income tax. A tax
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credit is often more advantageous. In either case, the gross amount of
ordinary dividends must be reported on Schedule B of your 2010 federal
income tax return, even though a net payment was received. Form
1099-DIV shows the aggregate amount of your gross foreign source
dividends in Box 1a and the corresponding foreign taxes paid in Box 6.
Please note that the amount of foreign tax paid shown in Box 6 represents
the amount actually withheld by the foreign payer. This amount may be
more than the foreign tax credit you are eligible to claim on your federal
income tax return (Form 1040). Please note that foreign withholding taxes
in excess of 15 percent on qualified dividends may not be creditable.
Consult your tax advisor and/or IRS Publication 514 for information on
claiming foreign tax credits or deductions.
To Holders of Unit Investment Trusts Organized as Taxable
Grantor Trusts
Please see section Form 1099-INT — Interest Income 2010, page 2,
column 2 for explanation.
Taxable Spin-offs and Other Distributions
Our Clearing Broker is required to report the following distributions as
taxable dividends:
• Stock dividends on preferred stock
• Taxable stock rights
•Optional stock dividends (dividends that can be paid in cash or, on
your election, in stock)
• Certain taxable corporate actions (mergers, spin-offs, etc.)
These distributions are priced at market value on the date of distribution
as declared by the distributing company and then included in your total
dividend amount in Box 1a, Box 2a or Box 3. For details of the amounts,
the market price and the name of the distributing company, refer to
“Details of 1099 Reported Dividends and Distributions 2010” in your
Year-End Summary.
Liquidating Distributions
Liquidating distributions are listed in Boxes 8 and 9 of your Form
1099-DIV. IRS regulations require us to report Liquidating Distributions
in excess of $600 (as a total of Boxes 8 and 9) on Form 1099-DIV.
However, you may have to report distributions less than $600 on IRS
Form 1040. Generally, noncash liquidating distributions were priced at
market value on the date of distribution.
Nondividend Distributions
Once you have received an amount equal to your cost, or other basis,
return of capital distributions may be taxable to you as capital gain even if
it is shown in Box 3 of Form 1099-DIV. For more information, see IRS
Publication 550, Investment Income and Expenses.
Form 1099-OID — Original Issue Discount 2010
Original Issue Discount (OID) is the difference between the stated
redemption price at maturity and the original issue price of a bond,
debenture, note or other debt instrument. This also applies to certificates of
deposit and other deposit arrangements having a term in excess of one year,
provided the payment of interest is deferred until maturity. Holders of
certain preferred securities such as MIDS, QUIDS and TOPRS may also
receive Form 1099-OID. While these issues are traded in share
denominations and on equity exchanges, they are in fact debt securities. As
the distributions may not meet the definition of Qualified Stated Interest,
all income may be reported as OID.
Please Note: Distributions from securities of this type with an issue date
on or after August 13, 1996, are likely to constitute Qualified Stated
Interest and be reported on Form 1099-INT.
Other investments which are classified under the tax law as “contingent
payment debt obligations” may also give rise to reportable OID. When
examining your Form 1099-OID, please remember that Original Issue
Discount is taxable over the life of the obligation as it accrues. If you
are the holder of one of these obligations, you must include the amount
of the accrued discount in your gross income over the period you hold
the obligation.
The amount of accrued OID income, which is reflected in Box 1 of Form
1099-OID, is calculated based upon the number of days during the year
that you actually held the security. For more information, please refer to
the detailed information provided on the enclosed “Instructions for
Recipients of Forms 1099.”
Original Issue Discount on U.S. Treasury obligations for the part of the
year that you owned the security will be reported separately in Box 6.
Investment Expenses from unit investment trusts (grantor trusts) and
single-class REMICS will be included in Box 7, Investment Expenses. The
amount reported in Box 7, Investment Expenses is your share of
investment expenses that are included in Box 1. If you file a federal tax
return on Form 1040, you may deduct these expenses on the “Other
Expenses” line of Schedule A, Form 1040, subject to the 2% adjusted gross
income limitation.
For guidance in computing your actual OID income, consult your tax
advisor or IRS Publication 1212. You may need to adjust reported amounts
if your investments include stripped bonds or coupons, or you did not
acquire the obligation as an original purchaser when the obligation was
issued. OID calculations may differ for these investments. Adjustments to
the calculations of OID can be made on Schedule B of IRS Form 1040.
Tax-exempt OID Income is not required to be reported on Form
1099-OID at present. However, to the extent that Our Clearing Broker has
been able to obtain the relevant information, they have reported the
amount of tax-exempt OID that accrued on your holdings in the Year-End
Summary. This information is shown under the header “Details of
Tax-Exempt OID 2010.” For further information, please refer to that
section of this brochure.
Form 1099-B — Proceeds from Broker and Barter Exchange
Transactions 2010
Gross proceeds are reported to the IRS on Form 1099-B, on a transactional
basis, after deduction of commissions and accrued interest received. Please
refer to the instructions for IRS Form 1040 for information about the
treatment of gross proceeds.
What We Report
Our Clearing Broker reports to the IRS on Form 1099-B all transactions
involving sales, redemptions, taxable exchanges, tenders, called bonds,
mutual fund exchanges, cash mergers, short sales, fractional share sales
exceeding $19.99, and return of principal payments. All of these
transactions with a trade or effective date in 2010 are reportable in 2010.
The amount reported, unless otherwise indicated, represents the net
proceeds after commissions and other selling expenses. Options are
excluded from Form 1099-B reporting requirements.
IRS regulations require Our Clearing Broker to report municipal bond
sales, redemptions and return of principal on Form 1099-B, even though
interest from these securities is generally tax-exempt.
Short-Term Original Issue Discount Securities sold prior to maturity must
be reported by the broker effecting the transaction on Form 1099-B as a
sale. In these cases, the “accrued” discount to the date of prematurity sales
of the short-term obligation will not be reported on either Form 1099-INT
or Form 1099-OID. You should consult your tax advisor concerning how
this impacts the preparation of your tax return.
Reporting of Taxable Mergers and Acquisitions
An information return is required to be filed when there is either a gain
or loss recognized (in whole or in part), by shareholders as a result of a
corporation’s stock or assets being acquired by another corporation. In
transaction subject to the special rules under Internal Revenue Code
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section 367(a), the acquiring corporation (or the acquired corporation,
if so required by the regulations) must report the following:
•A description of the transaction;
•The name and address of each shareholder of the acquired corporation
that recognizes gain as a result of the transaction (or would recognize
gain, if there was a built-in gain on the shareholder’s shares); and
•The amount of money and the value of stock or other consideration paid
to each shareholder.
Our Clearing Broker is required to report such transactions on Form 1099-B.
Box 5 reports the number of shares exchanged. Box 6 reports the class of
stock exchanged, and Box 12 is checked if the taxpayer cannot deduct a loss
with respect to the gross proceeds received. The corporation’s name is required
to be reported on Form 1099-B in addition to the other information.
How to Report Your Short Sales
If you sold stock short in 2010, you will receive a Form 1099-B reporting
the sale, although you may not have closed the position. You should report
the transaction on IRS Schedule D (Form 1040), line 1, even though the
position is still open, and attach a statement explaining that the transaction
represents a short position that has not yet been covered.
Form 1099 MISC — Miscellaneous Income 2010
If you have received income from a royalty trust, substitute payments in
lieu of dividends, contract adjustment payments, consent payments, or
other miscellaneous income, the totals can be found in this section of your
Forms 1099. The details can be found in “Details of Additional Summary
Information 2010” on your Year-End Summary.
Box 2 contains distributions from royalty trusts. Report this amount on
Schedule E (Form 1040). For royalties on timber, coal and iron ore, see
IRS Publication 544, Sales and Other Disposition of Assets.
Box 3 contains contract fees or other income paid to you as an investor in
certain types of units composed of a debt obligation and a forward
purchase contract or option. Box 3 also is used to report consent payments,
Settlements and Debt Write-offs in excess of $600.
Box 8 contains substitute payments in lieu of dividends or tax-exempt
interest received on your behalf by Our Clearing Broker. This may occur
when you maintain a Portfolio CreditLine®, as described in the Account
Application and Client Agreement. Payments in lieu of dividends are taxed
at ordinary income tax rates and are not eligible for the reduced rates that
apply to qualified dividends. You may rely on your Forms 1099 for
determining whether you have received a payment in lieu of dividends and
the amount thereof, unless you have actual knowledge to the contrary.
Understanding Your Year-End Summary
The information in your Year-End Summary is provided for your
convenience and is not reported to the IRS. The Summary has been
prepared specifically for your account, so only the sections relevant to your
investments will appear on your statement. The following is an explanation
of each section as it may appear in your Year-End Summary.
Value of Your Portfolio
This section of your Summary provides an overview of your investments at
year-end. The value of your account is shown as of the close of business on
December 31, 2010. Certain positions may not be shown at their current
market values. The best information available is provided to you.
Interest You Paid 2010
This section includes total amounts charged to you for margin and other
loans during the year. Also listed is the total taxable and nontaxable accrued
interest you paid when you purchased bonds. Certain types of interest paid
may be used to reduce your tax liability, but cannot be offset against
interest reported to you on Forms 1099. For specific details refer to
“Details of Accrued Income 2010.”
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Earnings Summary 2010
This summary provides an overview of your earnings for 2010. It includes
reportable and tax-exempt amounts.
Details of Tax-Exempt OID Income
Tax-exempt OID income is not required to be reported on Form 1099OID at present. However, to the extent Our Clearing Broker has been able
to identify bonds issued with tax-exempt OID and to obtain the relevant
rate information, they have calculated the amount of tax-exempt OID
income that accrued on each of your holdings in 2010, including OID that
is subject to AMT. These amounts are shown on your Year-End Summary
under the header “Details of Tax-Exempt OID 2010.” Please understand
that the same assumptions used in calculating accrued taxable OID income
on Form 1099-OID were used in calculating accrued tax-exempt OID
income. The OID rates applied assume that you purchased the tax-exempt
bond on the date of its original issuance and at its original issue price. If
your actual purchase date or price is different, the reported amount of
tax-exempt OID may need to be adjusted. Tax-exempt OID income should
be reported to the IRS on your federal income tax return. Please consult
your tax advisor for further information.
Adjustment to OID for Contingent Payment Debt
Obligations 2010:
In general, a contingent payment debt instrument provides for one or more
payments that are contingent as to timing or amount. If you hold a
contingent payment bond or note, you must report OID as it accrues each
year. If, during any taxable year, you receive actual payments that in the
aggregate either exceed the total amount of projected payments for that
taxable year, or are less than the amount of projected payments for that
taxable year, you will incur either a “net positive” or “net negative”
adjustment under the Contingent Debt Regulations, equal to the amount
of such excess or deficit. You will treat a “net positive” adjustment as
additional interest income, which will increase the total amount of OID
for that taxable year. Alternatively, a “net negative” adjustment will reduce
your interest income for that taxable year, which will decrease the total
amount of OID. Accordingly, the amount of taxable income that you may
be required to report for a particular year may differ significantly both from
the amount of OID and the actual cash payments received.
There is no formal mechanism to report these adjustments. Nevertheless,
you are required to account for these adjustments when preparing your
federal income tax return. For your convenience Our Clearing Broker has
provided the requisite adjustments for 2010, and reported these amounts
in this section. The amount reported on Form 1099-OID together with
applicable positive or negative adjustments should be reported on Schedule
B, Form 1040, of your individual tax return. Each amount should be
reflected on a separate line of the Schedule B. [Note, details of these types
of adjustments are provided only with respect to a limited number of
CGMI proprietary issues.]
Additional Summary Information 2010
This section is an overview of the income generated from:
•Royalty trusts and substitute payments in lieu of dividends (reported on
Form 1099-MISC)
•Limited partnerships and other securities (reported on Schedule K-1)
•Settlements and adjustments (reported on Form 1099-MISC)
•Contract adjustment payments, consent payments (reported on Form
1099-MISC)
Summary of Miscellaneous Tax Withheld 2010
This section contains an overview of taxes withheld from both domestic
and foreign sources.
Limited Partnerships
Although your monthly statement reflects distributions received from
limited partnerships and other securities during 2010, this data, shown in
“Other Income,” is for your information only. In preparing your tax returns,
you should utilize the information that will be provided by general partners
on IRS Schedule K-1 (Form 1065) “Partner’s Share of Income, Credits,
Deductions, etc.” Clients should expect to receive a K-1 for all partnerships they
hold within their account whether or not they have distributed income. The
Schedule K-1 will be sent directly from the partnership.
Details of Option Activity 2010
This section shows detail of your 2010 option transactions, including
Purchases, Sales and Expirations. At present, a broker is not required to
report activity relating to equity options to the IRS. However, taxpayers are
required to include this information in their federal income tax return.
•Checks written with expense codes
•FMA Card Activity. The total amount is shown for payments from your
FMA account for debit card expenses
FMA Card Activity — Summary 2010
This section gives you a recap of all purchases made in 2010 by month and
by industry classification. For better organization, purchases have been
designated as either Travel, Restaurants, Entertainment, Merchandise or
Other. Cash Withdrawals reported reflect total ATM withdrawals and cash
advances made in 2010.
FMA Card Purchase Activity — Detail Report
The Details of Accrued Income section includes:
To simplify tax preparation and to provide you with a single source of all
2010 activity for your records, this section provides details of each purchase
made with your FMA Card, arranged by industry classification and month
in which the payment was reported on your FMA monthly statement. A
column is provided that allows you to distinguish between your personal
and business expenses to assist you in tax preparation.
•Accrued interest paid as a result of purchases
Q&A About Your Forms 1099/Year-End Summary
•Accrued interest received as a result of sales
Q:The earnings on some of my investments are reinvested in
additional shares (e.g., mutual funds). Why is income on these
earnings reported when I receive no cash? What is the cost basis
of my reinvested dividends?
Details of Investment Activity 2010
The Investment Activity Section shows activity with trade dates in 2010,
including: Purchases; Dividend Reinvestment; Sales; Certain other activity.
Details of Accrued Income 2010
•Accrued dividends received
•A reference number for identification purposes, should you have
an inquiry
•The Date of the Transaction, meaning the trade date
If you purchased a bond at any time during the year, the amount of
accrued interest paid was not included in the cost basis of the security. The
gross amount of interest received has been reported to the IRS on Form
1099-INT. Payments of accrued interest have not been reported by Our
Clearing Broker to the IRS, nor have they been netted against the gross
amount of interest received during 2010.
Under current tax law, both corporate and individual taxpayers are
permitted to offset accrued taxable interest paid against the next coupon
payment. The Year-End Summary displays a separate entry for each
accrued interest payment you made on a bond purchase, since you may
only deduct accrued interest paid from the next coupon received from
that security.
This offset to interest income is only allowed in the tax year in which the
income is reported.
Accrued dividends are dividends received upon the sale of a mutual fund
that accrues these dividends daily, or upon the redemption of preferred
stock shares. This amount is included in the amount reported on your
Form 1099-DIV.
The following sections outline the activity for Financial Management
Accounts (FMA®).
Details of Deposits and Withdrawals 2010
This section provides details of miscellaneous deposits, credits and debits
charged to your account in 2010.
Summary of Expenses 2010
FMA checking and debit card activity is recapped in this section.
Additional information may be provided directly by the FMA Card
issuer. The section contains:
A:Even if your dividend income is reinvested in additional shares, these
dividends are taxable and are included in the income amounts shown
on your Form 1099-DIV. Your basis in the additional shares is the
amount of the dividend reinvested. When selling shares, the basis
allocable to the shares sold is determined using one of the three
methods. Unless a different method is elected, the shares sold are
deemed to be those shares which were acquired first (first-in/first-out or
FIFO). Alternatively, you may elect at the time of the sale the “specific
identification” method, in which you designate the specific shares sold
(by acquisition date and basis). The third method is the “average cost”
method — available only for shares of mutual funds. Consult your tax
advisor to help you determine the method that is right for you..
Q:Are tax-exempt earnings that are subject to the Alternative Minimum
Tax (AMT) reported to the IRS on Forms 1099?
A:Yes, all tax-exempt interest is now reported in Box 8 on Form 1099INT, and Box 9 on the Form 1099-INT is used to report interest from
private activity bonds that is subject to alternative minimum tax
(AMT). We have used our best efforts to identify private activity bonds
and to obtain information from mutual funds and unit investment
trusts on the portion of distributions that are subject to AMT. While we
have obtained this information from sources we consider reliable, we
cannot guarantee its completeness or accuracy.
Q:The Social Security number, name or address on my Forms 1099 is
incorrect. How can I have it adjusted?
A:Contact your Financial Advisor at the number listed on your statement
and ask to have the information corrected. You may be required to
complete paperwork detailing the nature of the change.
FMA, Financial Management Account and Portfolio CreditLine are service marks of Morgan Stanley Smith Barney LLC.
© 2011 Morgan Stanley Smith Barney LLC, accounts carried by Citigroup Global Markets Inc., members SIPC.
NY CS 6561981 01/11
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Morgan Stanley Smith Barney LLC, its affiliates and Citigroup Global Markets, Inc. do not provide tax or legal advice. To the extent that this material or any attachment
concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer
should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.