A Comprehensive Guide to Your
2016 Composite 1099 Tax Statement
Table of Contents
A Note from Hilliard Lyons ...................................................................................................................... 1
Tax Information Reporting and Our Obligation to Clients ..................................................................... 2
What’s New This Year and Important Dates to Remember ................................................................... 4
Information to Be Aware of When Preparing Your Tax Return ............................................................. 7
Your Composite 1099 Tax Statement ................................................................................................... 10
Original Issue Discount (OID) ................................................................................................................ 12
Proceeds from Broker and Barter Exchange Transactions ................................................................... 15
Dividends and Distributions .................................................................................................................. 21
Interest Income ...................................................................................................................................... 26
Tax Terms and Rules You May Need to Know ...................................................................................... 30
Glossary .................................................................................................................................................. 34
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A Note from Hilliard Lyons
At Hilliard Lyons, providing excellent client service is our highest priority. We work diligently to
enhance and refine the support we provide you as you fulfill your tax return filing obligations.
This year-end 2016 tax guide is a reference document provided to accompany your Hilliard Lyons
Composite 1099 Tax Statement. This guide explains in detail the content of your Composite Statement, which includes 1099 and other tax information reporting documents as well as supplemental
information. The Guide also reviews tax rules and concepts incorporated into 1099 reporting. This
is especially important, as the tax information we must furnish you is, at times, only the starting
point for your calculations rather than the final numbers.
Sometimes, tax rules require treating certain transactions differently from what you might expect
(wash sales, amortization, writing options, etc.). That is why we sometimes refer to Section 4, “Tax
Terms and Rules You May Need to Know,” below to help you understand how your transactions are
treated under the Internal Revenue Code. Understanding these non-intuitive tax rules can help you
not only prepare this year’s tax return but also consider your investment strategy in a new light.
Taken together, this Guide and your Composite 1099 Tax Statement can support and facilitate the
successful filing of your tax returns. Remember that you can download your data straight into
TurboTax®, making it simpler for you or your tax preparer to incorporate your financial transactions
into your tax return.
As always, we are grateful for the opportunity to be of service. We appreciate your trust in Hilliard
Lyons.
Hilliard Lyons does not provide tax advice.
This material is presented for informational purposes only.
Consult your tax advisor concerning any issues that may affect your tax situation.
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Tax Information Reporting and Our Obligation to Clients
Federal tax law requires financial services firms to report certain tax information to both their customers and the Internal Revenue Service. At Hilliard Lyons, we must provide you with Tax Information
Statements for interest, dividends, proceeds of sale, and some other financial transactions (such as
retirement distributions). Tax regulations also require that we provide this same information to the IRS
on Tax Information Returns. Although the IRS issues individual forms for reporting purposes (1099-INT,
1099-B, etc.), the rules permit us to combine certain forms into a Composite Substitute Statement,
provided the information presented conforms with IRS Publication 1179. Our Composite Tax Statement
includes reporting on payments consisting of the proceeds of brokerage and barter transactions, dividends, interest, original issue discount (OID), patronage dividends, and royalties.
The Composite 1099 Tax Statement
Your Composite 1099 Tax Statement includes transactions subject to reporting on:
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Form 1099-B
Form 1099-DIV (except for certain dividends)
Form 1099-INT (except for certain interest)
Form 1099-MISC (only for royalties or substitute payments in lieu of dividends and interest)
Form 1099-OID
Form 1099-PATR
Form 1099-S (only for royalties)
Your Composite Tax Statement also includes information to help in your tax return preparation. Such
information can include basis for non-covered lots, explanatory remarks on permissible basis adjustments for covered lots, and descriptions of the type of transaction (merger, buy to close, redemption,
etc.). We also provide schedules that include:
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Reconciliations, Fees, Expenses and Expenditures
Detail of Miscellaneous Income
Detail of Tax-Exempt Interest
Fees & Expenses
Schedule of Management Fees
Exempt Accounts and Non-Reportable Transactions
Some accounts are exempt from IRS Form 1099 reporting and backup withholding requirements. These
generally include accounts for C corporations, qualified retirement plan accounts (QRPs), individual
retirement accounts (IRAs), certain WHFITs, charitable organizations, foreign accounts, and most federal, state, and local government accounts. You can see a fuller list of exemption criteria in the Instructions to IRS Form W-9 (Request for Taxpayer Identification Number and Certification). If your account is
exempt from IRS Form 1099 reporting and you receive a Tax Information Statement, please contact
your Financial Consultant. This may be because your account has been set up for delivery of non-
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reportable statements. This is a service where information is provided to the account holder similar to
a 1099 statement but no IRS reporting occurs.
Some retirement account information reporting occurs through Form 5498 (IRA Contributions) and
Form 1099-R (distributions from pensions, IRAs, etc.). These are not part of our Composite Tax Statements. We issue these forms only in connection with contributions to and distributions from qualified
pension, IRA, and similar plans.
De Minimis Exemption for 1099 Reporting
In general, all payments of interest and dividends to US citizens are subject to reporting on the form
1099 series. Such payments include interest (1099-INT), original interest discount (1099-OID), dividends
(1099-DIV), substitute dividend payments (1099-MISC), and patronage payments (1099-PATR). There is
a de minimis reporting exception for amounts less than $10 on all of these income items.
Proceeds of sale are subject to reporting on Form 1099-B along with the holder’s basis in the security
sold. There is no de minimis exemption from 1099-B reporting of proceeds of sales. Tax laws have
changed the de minimis threshold level for corrected 1099 forms, and this is discussed below in the
section “What’s New This Year and Important Dates to Remember.”
Account Transfers
Understanding your Composite Tax Statement also requires an understanding of how we handle account
and security transfers. We can provide year-end tax information only for sales we have effected on your
behalf. If you transferred your account to Hilliard earlier this year, you should receive a 1099 statement
from your prior broker for transactions and income earned in the account at the prior broker. When
your account transferred in, we received your security positions, and in the case of covered securities
subject to cost basis reporting, we should have also received the basis in each individual tax lot. Our
obligation is to report that basis when you later sell those securities through us.
If your broker failed to provide basis for covered securities, we will have attempted to obtain that information from the broker. If we did not get it, then we can treat those securities as non-covered, and basis
reporting is not required. However, in such cases, we recommend reviewing your original purchase to
capture and preserve your basis for future tax filing purposes. If you transferred any open short positions, we must issue a 1099-B at the time of closing, reporting both the cost and original proceeds you
received when you opened the transaction in your account before transfer.
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What’s New This Year and Important Dates to Remember
Tax year 2016 brings with it several tax reporting changes and the last significant phase-in of cost basis
reporting. Under the cost basis reporting regulations “Complex Debt” instruments became covered securities as of January 1, 2016. Complex debt includes variable-rate debt instruments, inflation-indexed debt,
contingent payment debt instruments, options on debt with payments denominated in, or determined
by reference to, a currency other than the U.S. dollar, and options issued as part of investment units. Any
purchases of these securities you made in 2016 are being tracked for basis reporting. We have highlighted
some of the important aspects of these complex debt instruments and their treatment under the basis
reporting regulations in the section “Tax Terms and Rules You May Need to Know” further below.
The changes made by the IRS to tax reporting forms includes adding a FATCA check box to Forms 1099-B
and 1099-R to identify whether the reportable payment is being made by a foreign financial institution
under the FATCA regulations. This is similar to last year’s check box that was added to Forms 1099DIV, -OID, and -INT.
Box 12 was added to Form 1099-INT to display Bond Premium on Treasury Obligations. This addition
causes a change to the use of Box 11 as well. Previously, Box 11 was for all bond premium on taxable
bonds (covered lots). Now Box 11 must include the bond premium only on taxable bonds that are not
treasury obligations, while Box 12 displays premium on Treasury obligations. Box 10 was added on Form
1099-OID to display Bond Premium related to qualified stated interest payments if a broker chooses to
report such payments and offsetting premium on a Form 1099-OID. But, since we have been reporting
these amounts for an OID bond on Form 1099-INT, as permitted by the regulations, we will continue to
do so. This means of clearly distinguishing payments of qualified stated interest and associated bond
premium amortization from the accrual of original issue discount and associated acquisition premium
facilitates your view of tax reporting documentation and supports tax preparation.
An additional check box has been added to Box 2 on Form 1099-B for situations in which some of a taxpayer’s gain or loss may be ordinary rather than capital. We can report short-term, long-term, or ordinary
income by checking one of the boxes. But we can check up to two boxes in Box 2, reporting a combination
of either Short-Term and Ordinary, or Long-Term and Ordinary. This new approach to reporting income
duration and character is designed to better inform taxpayers when transactions in contingent payment
debt instruments or debt denominated in foreign currency is being reported.
A further change on the 1099-B impacts the reporting of Wash Sales, Accrued Market Discount and Collectibles. For the last two years a single box (1f) has been used to report disallowed wash sale losses and
market discount recognized at sale or maturity. An additional box (1g) displayed the qualifying codes for
those items and as well as a code if the proceeds in Box 1d were from the sale of collectibles. The 2016
version of Form 1099-B separates these amounts into distinct boxes and eliminates the box devoted to
the codes. Box 1f is now used for reporting accrued market discount, box 1g is for reporting the amount
of wash sale loss disallowed, and the collectibles indicator has been moved to box 12.
The IRS has revised the de minimis dollar thresholds brokers can apply when issuing a corrected Form
1099. As you know most Forms 1099 have a $10 de minimis threshold for reporting purposes. Until now,
such minimums also applied to a corrected Form 1099. Form 1099-B, on the other hand, has never had a
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minimum threshold. All securities transactions subject to Form 1099-B reporting, regardless of dollar
amount, had to be reported. This applied to initial statements and corrected ones.
As of January 1, 2107, there will be new thresholds in place for “corrected” Forms 1099, which will
include Form 1099-B. If one or more dollar amounts are incorrect on a 1099 statement we have furnished
to you, no correction of the dollar amount will be required, if:
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The difference between the dollar amount reported on the furnished payee statement and the
correct amount is no more than $100; and
The difference between the dollar amount reported for tax withheld on the furnished payee
statement and the correct amount is no more than $25.
This provision will help taxpayers avoid having to amend their tax returns for minor adjustments. But you
can request that you continue to receive all corrected Forms 1099, in which case such corrected forms
will also be furnished to the IRS. From the IRS point of view, these changes are part of a much broader
program to enhance and accelerate reporting and reduce “Refund Fraud.” Also included in this fraud prevention program is a new restriction that delays payment of refunds or credits before February 15 to a
taxpayer who claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return. If such
credits are not claimed, there is no delay in refund processing.
Important Dates
We will mail the following single tax forms on or before January 31, 2017:
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•
•
Form 1099-INT
Form 1099-OID
Form 1099-DIV
Form 1099-R
 Form 1099-Q
 Form 1099-MISC (except payments reported in boxes 8 or 14)
 Form 1099-C
On or before February 15, 2017, we will be mailing single Form 1099-Bs, Form 1099-MISC reporting
payments in box 8 or 14, and the Composite 1099 Tax Statements. When you get these statements will
depend upon what you hold in your account. Most accounts with mutual funds, unit investment trusts
(UITs), real estate investment trusts, and other securities subject to income reclassification will be
mailed by February 15, 2017. But accounts pending final reclassifications will be mailed after February
15 and before March 17, 2017. We will get an IRS extension to file for these accounts.
Delaying delivery of statements with late reclassifications sounds like a bad thing – but it means you may
avoid having to amend your tax return to reflect changes to income and basis in securities. We work
closely with industry experts in securing reclassification information as soon as it is available to expedite
any delayed statements.
We will be mailing our 1042-S Non-resident Alien tax statements on or before March 15, 2017.
Before May 31, 2017, we will mail Form 5498, IRA Contribution Information.
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Revised (Corrected) Tax Information Statements
If we get corrected or updated information, we will report it to you and to the IRS, if required, on a
revised Tax Information Statement. Corrected transactions will show a “C” in the ‘Notes’ column of the
revised Tax Information Statement.
Tax regulations require that we correct a 1099 statement if given revised information within three years
after issuing the original 1099. Additionally, a broker that transfers an account must furnish corrected
information for a transferred tax lot up to 18 months after the original transfer. This could also lead to
the issuance of a corrected 1099 statement.
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Information to Be Aware of When Preparing Your Tax Return
Before preparing your tax return, please note the following important information: This guide is to
help you prepare your federal income tax return and is for use by individual U.S. taxpayers (who file IRS
Form 1040 and are “investors” for tax purposes and not “traders” or “dealers” in securities, for whom
special tax rules may apply). You should review the information in this section before you begin preparing your tax return. Being aware of these topics will help you address the fundamentals properly. Your
tax professional can provide detailed advice as to specific federal, foreign, state, and local tax reporting
requirements.
Payer
The “payer” for all transactions on your Tax Information Statement is J.J.B. Hilliard, W.L. Lyons, LLC
(Taxpayer Identification Number 26-2333067). This name and TIN should be listed wherever the payer’s
name is requested on an IRS form with respect to amounts reported on your Tax Information Statement.
Taxpayer Identification Number
Please check your name and Taxpayer Identification Number (or truncated number) displayed on your
Tax Information Statement. If it is either missing or incorrect, you should promptly complete an IRS
Form W-9 (Request for Taxpayer Identification Number and Certification), sign it, and get it to your
Financial Consultant. If your Tax Information Statement shows more than one name, ensure that the
statement’s TIN belongs to the individual whose name is listed first. If not, please contact your Financial Consultant. To avoid backup withholding, it is important to ensure that your name and Taxpayer
Identification Number are correct. If the information is not correct, or does not match the records of
the IRS or Social Security Administration, then, upon notice from the IRS, pursuant to its “B-Notice
Program,” we may be required to start backup withholding.
Nominee Recipients
If your TIN or Employer Identification Number (EIN) is shown on your Tax Information Statement, and
the statement includes amounts that belong to another person, you are considered a “nominee recipient.” You must file IRS Form 1099 for each of the other owners, showing the income allocable to each.
File the applicable IRS Form 1099 (Copy A) along with IRS Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) with the IRS Center in your area. You should be listed as the “payer”
on IRS Form 1099 and as the “filer” on IRS Form 1096. You must furnish copy B of IRS Form 1099 to
the other owner(s). Note that spouses need not file a nominee report to show amounts that the other
spouse owns. To order official IRS information returns, visit www.IRS.gov/orderforms.
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IRS Publications
You can get IRS publications from your local IRS office, by calling the IRS Forms Distribution Center at
(800) TAX-FORM, or visiting the IRS website at www.irs.gov. These IRS publications provide useful tax
information related to reporting securities transactions:
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Pub 550 – Investment Income and Expense;
Pub 590A – Contributions to Individual Retirement Arrangements;
Pub 590B – Distributions from Individual Retirement Arrangements;
Pub 938 – Real Estate Mortgage Investment Conduits (REMICs) Reporting Information;
(and Other Collateralized Debt Obligations (CDOs); and
 Pub 1212 – Guide to Original Issue Discount (OID) Instruments.
Separate Accounts
You will get a separate Tax Information Statement for each brokerage account you maintain with us.
Whether you have a second account with us or an account at another brokerage firm, note that some
reporting processes may require the netting or matching of transactions and positions between multiple accounts. For example, purchases and sales of the same security (including in retirement accounts)
can lead to wash sales, and options and short positions can require holding periods to be adjusted. (See
“Tax Terms and Rules You May Need to Know” below.) Please consult with your tax advisor for other
situations that may require you to consider multiple accounts.
Timing Differences
There are timing differences between your Composite 1099 Tax Statement and Brokerage Account
Statement. Dividends and interest declared and made payable by mutual funds and REITs in October,
November, or December are reported on this year’s Tax Information Statement, even when the dividends were actually paid in January. Similarly, dividends and interest paid on WHFITs and WHMTs in
October, November, or December are reported on this year’s Tax Information Statement, even when
the dividends and interest are actually paid in January or February. The dividends are referred to as
“spillover dividends” and will not be reported again on the following year’s Tax Information Statement.
There may also be a timing difference when a short sale transaction is closed for a year-end profit. Your
Composite 1099 Tax Statement will not reflect the closing transaction until the later year, but you must
report and recognize the income in your current year’s tax filing. (See “Tax Terms and Rules You May
Need to Know” below.)
Margin Accounts – Substitute Payments / Tax-Exempt Bonds
If you have a margin account with a debit balance, securities in the account can be loaned to a broker.
If you had shares loaned out over a dividend record date, you may receive a substitute payment instead
of a dividend payment. Substitute payments are taxed at ordinary income tax rates and are reported to
you on Form 1099-MISC.
Remember that you cannot deduct the interest expense on a loan taken out to buy a tax-exempt bond.
Borrowed funds used for and directly traceable to the purchase of a tax-exempt instrument are not a
deductible investment expense. You should keep careful records and make certain your borrowing for
investment purposes does not open the door to possible IRS interpretation that such borrowing can be
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allocated to a tax-exempt instrument rather than a taxable one when you are deducting investment
interest.
Federal Income Tax Withheld (Backup Withholding)
We are required by law to withhold 28% of federal income tax from all reportable dividends, interest,
and gross proceeds paid to certain U.S. persons (including trusts and partnerships) who fail to furnish
a valid TIN or appropriate certification (IRS Form W-9). This is called “backup withholding.” If you are
exempt from backup withholding because you are an exempt recipient (such as a QRP or charity),
please furnish your Financial Consultant with an executed IRS Form W-9, including the exemption. If
you are exempt from backup withholding because you are a foreign person, please furnish a withholding certificate, such as IRS Form W-8BEN.
We report federal income tax withheld separately in the 1099-B, 1099-DIV, 1099-INT, and 1099-OID
sections of your statement. You should combine these amounts and report them on IRS Form 1040, line
64.
Form 8949 and Schedule D
Form 8949 is used to report sales and exchanges of capital assets. It allows you and the IRS to reconcile
amounts reported to you and the IRS on Form 1099-B with the amounts reported on your Form 1040,
Schedule D. This is done by placing information into various short-term and long-term categories on the
Form 8949 and then transferring totals to Schedule D. Our Composite 1099 Tax Statement indicates
what information should be placed on the Form 8949 and under which categories. This is presented
on the Form 1099-B portions of the Composite Statement. Note that the reporting of ordinary income
derived from contingent payment debt instruments is now accounted for by using the IRS worksheet,
“Worksheet for Contingent Payment Debt Instrument Adjustment in Column” on page 10 of the 2016
Instructions for Form 8949. Generally, when a gain is the result of the worksheet, it is reported as interest income on the Form 1040; if a loss results, generally it is reported as an ordinary loss on the tax
return.
TurboTax®
You can download your Hilliard Lyons tax information to your TurboTax® software. You will need to
know your account number and the document ID. Please see the TurboTax import instructions at
www.hilliard.com for more detailed information.
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Your Composite 1099 Tax Statement
Your Composite 1099 Tax Statement contains information we report to the IRS and additional information that may be useful to you. Some categories of transactions may not pertain to your account. Summary displays are provided, some presenting transactions that we do not report to the IRS, but which
you may find helpful in preparing your tax returns. We give examples of these summaries below.
The first page of your Tax Statement contains account and payer required information in the top section. Then the “Summary Information” sections begin (see below). In the center of the page, the following sections are presented and serve as substitute Form 1099 statements. This is possible because
the information in these statements can be presented in the aggregate and need not be presented on
a transactional or position basis. This information is reported to the IRS as it appears below.
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Dividends and Distributions
Miscellaneous Income
Regulated Futures Contracts
2016
2016
2016
1099-DIV
1099-MISC
1099-B
The lower portion of the page shows a Summary of Proceeds, Gains & Losses, Adjustments and Withholding that summarizes all Form 1099-B transactions (other than those treated for tax purposes as
regulated futures). Note that Form 8949 information is highlighted here; you can use it a check when
reconciling your Form 8949 details to added totals. We do not report this summary to the IRS.
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The second page of your Tax Statement presents your substitute Form 1099-INT, which we report to the
IRS as presented here. Your Tax Statement also includes four information summaries on this page that
we do not report to the IRS. One of these is the Original Issue Discount (Form 1099-OID) summary. Similar to Form 1099-B, Form 1099-OID is not an aggregate presentation but an individual tax position/lot
presentation. Following this page, the substitute Form 1099-OID is presented for specific securities. The
other three summaries on this page, which are not reported to the IRS, are presented to support your
tax return preparation, and their content is self-explanatory.
Note that on the Form 1099-INT above, new Box 12 - Bond Premium on Treasury Obligations, now
appears. Also note that in the OID Summary no qualified stated interest nor related premium
appears as that information continues to be reported on the 1099-INT.
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Original Issue Discount (OID)
To better understand the presentation of Form 1099-OID, we will first take a closer look at the OID
summary. This document is not filed with the IRS, because the Form 1099-OID must reflect only one
debt instrument and at times the reporting may even be done on the tax lot level.
OID is a form of interest. It is the difference between a debt instrument’s stated redemption price at
maturity and its issue price. A debt instrument, such as a bond or note, generally has an OID when the
instrument is issued for a price less than its stated redemption price at maturity. If you owned a taxable debt obligation issued with OID, you may be required to include a portion of the OID in your gross
income for each year you hold the obligation, even if you did not receive any cash payments.
In complying with the requirement to report the OID income on a per-security or lot basis, we use the
Tax Information Statement Form 1099-OID (see below). Separate reporting of each debt instrument’s
OID is also required on your tax return. It is important that you report these amounts on your tax
return just as they appear on your Tax Information Statement. The IRS may attempt to match these
items to your tax return.
The OID Summary above shows $12,618.70 of total Non-Treasury OID in this account. According to
the Forms 1099-OID below on the Tax Information Statement, this derives from totaling the Box 1
amounts from 2 different instruments. The issuance of six Forms 1099-OID (individual line entries) is
due to the difference in tax lot acquisition dates. The corresponding covered lot acquisition premium
of $1,496.54 is presented under the Box 6 category. The non-covered acquisition premium also
appears but is not included in the OID Summary and is not furnished to the IRS.
The Box 8 Treasury OID amount of $4,458.96 is the product of 2 issues, which have generated a total
of three Forms 1099-OID. Note treasury income may be non-taxable by states.
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Original Issue Discount Form 1099-OID Detail
Income earned on an OID bond is calculated separately for each accrual period. Although we report
amounts to the IRS annually, we report income to you for each accrual period. The date each accrual
period begins is displayed in the detail section of your Tax Information Statement.
OID (column 1) – Amounts in this column reflect the OID on each obligation for the part of the year in
which it was owned.
Early Withdrawal Penalty (column 3) – Shows interest or principal forfeited if you withdrew before
maturity. See instructions to Form 1040 for guidance on where this amount may be deducted.
Market Discount (column 5) – Shows the discount accretion for the year if the debt instrument was
purchased at a market discount and you chose to recognize this interest income currently. (See “Tax
Terms and Rules You May Need to Know” below.)
Acquisition Premium (column 6) – Shows the amount of acquisition premium amortization for the
year, generally considered a reduction of OID reported to you. See the instructions for Form 1040,
Schedule B for where this amount may be deducted.
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Investment Expenses (column 9) – This represents your share of investment expenses of a single-class
REMIC. Your share of UIT, WHFIT, and WHMT expenses are also reported on this line. If you file IRS
Form 1040, you may be able to deduct this amount as Miscellaneous Itemized Deductions (subject to
the 2% limit (threshold)) on IRS Form 1040, Schedule A.
Because the amounts of OID we report on your Tax Information Statement may not be the amount on
which you should pay tax, you should calculate your OID adjustment. See IRS Publication 1212, Guide
to Original Issue Discount, for details. Report OID (1099-OID Summary First Line) on IRS Form 1040,
(Schedule B, Part 1 Interest) as shown below. Report Acquisition Premium as an adjustment to OID.
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Proceeds from Broker and Barter Exchange Transactions
Below, we provide a sample Summary of Form 1099-B information on the first page of a Tax Statement
that can be used in reconciling totals of information when filling out Form 8949 for Schedule D purposes. Note that the second column of information has alphabetic indicators that align the category
totals of Form 1099-B transactions to Form 8949.
This table matches 1099-B transactions with Form 8949:
Form 1099-B Section
Corresponding Form 8949 Part and Box
Short-Term transactions for which cost basis is reported to the IRS
A – Basis reported to the IRS
Short-Term transactions for which basis is not reported to the IRS
B – Basis not reported to the IRS
Short-Term transactions for which no Form 1099-B is received
C – Form 1099-B not received
Long-Term transactions for which cost basis is reported to the IRS
D – Basis reported to the IRS
Long-Term transactions for which cost basis is not reported to the IRS
E – Basis not reported to the IRS
Long-Term transactions for which no Form 1099-B is received
F – Form 1099-B not received
Undetermined Term – basis not reported to the IRS
B or E – Basis not reported to the IRS
Undetermined Term – 1099-B not received
C or F – Form 1099-B not received
The individual Forms 1099-B are provided in listings in this Tax Statement grouped by the same categories above. Long-term and short-term transactions are segregated both on the Summary and the individual 1099-Bs. Sales of those securities covered by basis reporting regulations are separated from noncovered securities transactions. This 1099-B format simplifies your process of recording or transcribing
each transaction from the 1099-B to Form 8949.
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The next table matches boxes from Form 1099-B, which report information for covered securities transactions, and the corresponding columns on IRS Form 8949. Note that although the Form 1099-B now
designates a separate box for wash sales and market discount, the Form 8949 continues to report those
amounts using column (f) for a code and column (g) for the dollar amount.
Form 1099-B Box
Corresponding Form 8949 Column
Item 1a – Description of property
(a) Description of Property
Item 1b – Date acquired
(b) Date acquired
Item 1c – Date sold or disposed
(c) Date sold or disposed of
Item 1d – Proceeds
(d) Proceeds (sales price)
Item 1e – Cost or other basis
(e) Cost or other basis
Item 1f – Accrued market discount, if any
(f) Codes from instructions
Item 1g – Wash sale loss disallowed, if any
(g) Amount of adjustment
The following contains six Forms 1099-B for short-term covered transactions. Note that one of the
trans- actions for Guggenheim Equity is made up of three separate tax lots with the column (1b) Date
Acquired displaying the word VARIOUS on the 1099-B transaction.
The Form 1099-B boxes are indicated in each column heading and the Part and Box for Form 8949 is
indicated in the three lines of description provided for Short Term Transactions for Covered Tax Lots.
If there was a need to indicate “Ordinary” income as part of this transaction, the word Ordinary would
appear in the Additional Information column. This presentation would be equivalent to checking the
Short-term and Ordinary boxes on a form.
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See the information provided in the “Tax Terms and Rules You May Need to Know” section below for
details on the following descriptions of Form 1099-B’s columns and headings.
1. Description of Property (1a) – Name and/or CUSIP of security sold.
2. Quantity (1a) – The number of shares displayed under the quantity column is considered a
part of the description of property included in 1a. If fractional shares are included, the fractional amount will be shown.
3. Short-Term Transactions for Covered Lots (2 & 5) – This caption addresses the information
requirement in boxes 2 and 5 on the Form 1099-B. It indicates all transactions appearing in
this section are covered and short-term.
4. Proceeds (1d) & Reported Gross / Net (6) – This is the amount of proceeds received from
the sale with an indication if an option premium was netted in the sale.
5. Date acquired (1b) – The word “VARIOUS” will display in this column if the securities sold
were acquired on a variety of dates. (See Guggenheim transaction above.) For covered
short sales, the date shown is the acquisition date of the security delivered to close the
short sale.
6. Cost or other basis (1e) – The cost or other basis for disposition transactions is shown in
this column. For additional information on cost basis, see IRS Form 8949, Schedule D (Form
1040) Instructions, IRS Pub. 550 (Investment Income and Expenses), and IRS Pub. 551 (Basis
of Assets).
7. Accrued Market Discount (1f) & Wash Sale Loss Disallowed (1g) – For transactions that
resulted in a wash sale, the nondeductible amount of the loss is displayed with code (W)
alongside. For securities with recognition of market discount the amount of market discount would be displayed with a (D) alongside. For transactions with both wash sale and
market discount only the wash sale information will be displayed.
8. Gain or loss (7) – The amount of gain or loss on the transaction is shown here but not
reported to the IRS (Z). However, if the loss is not allowed as a result of a reportable
change in control or structure it will be indicated here and reported to the IRS (X).
The following table presents Long Term Transactions for Covered Tax Lots. Note that other than the
description for box 2, which is now Long Term, all columns and boxes 3 (Basis Reported to IRS) and 5
(Covered Lots) are the same as for Short Term Transactions.
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The following table presents Long Term Transactions for Non-covered Tax Lots. Note that box 2 is not
mentioned because duration is not reportable for non-covered securities, and the title indicates box 5 is
checked as a non-covered security. The possibility of indicating that this long-term transaction also contains some “Ordinary” loss can be accomplished by indicating so in the Additional Information column.
Report each transaction separately on IRS Form 8949 and Form 1040, Schedule D, as either short term
or long term, depending on the holding period. Short-term transactions should be itemized in Part I of
Form 8949 and long-term transactions should be itemized in Part II. The sample statement below shows
how this information is reported on your Tax Information Statement, and the sample tax form below it
shows how you should report this information on your tax return. Note that Form 8949 has not been
changed to accommodate the reporting of Ordinary loss from a Contingent Payment Debt Instrument.
Its instructions include a worksheet with guidance on what to do once the Ordinary CPDI gain or loss
amount is calculated. There is no mention of treatment of currency gains or losses on non-US currency
denominated bonds which are also “Ordinary.” We report the entire transaction as a capital gain or loss
but will check the Ordinary box as some of the gain or loss may be currency conversion. You should consult with your tax advisor as to whether a foreign exchange gain or loss makes up part of the gain or loss
we are reporting.
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You would then take the totals at the bottom of IRS Form 8949, which could also include line item
amounts from other 1099-B forms, to complete Line 1 of Form 1040, Schedule D.
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Dividends and Distributions
The Dividends and Distributions Substitute 1099-DIV portion of your Tax Statement presents dividend
types with the level of detail the IRS requires.
Dividends and Distributions 1099-DIV
Total Ordinary Dividends (1a) – Ordinary dividends that include any net short-term capital gains from
a mutual fund are fully taxable. Report total ordinary dividends on IRS Form 1040, line 9a, or IRS Form
1040A. Also report it on IRS Form 1040, Schedule B (Interest and Ordinary Dividends), line 5, if
required. See the instructions for IRS Form 1040, Schedule B, to determine whether you must complete
Schedule B to report your dividends.
Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are
reported on Form 1099-DIV, Line 10. They are not reported on Form 1099-INT, Interest Income.
Qualified Dividends (1b) – The portion of your dividends that may be eligible for taxation at capital
gains rates appears as Qualified Dividends on line 1b. You should report the eligible amount on IRS
Form 1040, line 9b. If you have qualified dividends you must figure your tax by completing the Qualified Dividends and Capital Gains Tax Worksheet on IRS Form 1040 or 1040A instructions, or the
Schedule D Tax Work- sheet in the Schedule D instructions, whichever applies.
Exceptions: Some dividends reported as Qualified Dividends on line 1b may not be Qualified Dividends
depending on your circumstances, including those described below.

Dividends on stock or mutual fund shares that you owned for less than 61 days in the 121-day
period surrounding the ex-dividend date are not qualified dividends. The 121-day period begins 60
days before the ex-dividend date. When counting number of days you held the stock, include the
day you disposed of the stock, but not the day you acquired it. Your holding period need not be
continuous.

For dividends on preferred stock, when the dividend is attributed to periods totaling more than
366 days, the stock must be held for at least 91 days within the 181 days surrounding the exdividend date. Again, your holding period need not be continuous.
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
If you are obligated to make payments under a short sale, dividends on the stock you sold short
(or substantially similar stock) are not considered qualified dividends.

Substitute payments are not qualified dividends. Substitute payments are payments you receive
when your stock is on loan on the stock’s ex-dividend date. Your shares could be loaned if you
borrow to buy stock on margin. Substitute payments are separately reported to you on IRS Form
1099-MISC.
Foreign Dividends: Foreign dividends may be considered qualified dividends when paid by a foreign corporation that is either: (1) incorporated in a U.S. possession; (2) eligible for the benefits of a comprehensive income tax treaty with the United States and that the Treasury Department has determined is
satisfactory for this purpose; or (3) readily tradable on an established securities market in the United
States (such as the New York Stock Exchange or the NASDAQ stock market). But dividends paid by passive foreign investment companies are not considered qualified dividends.
Money Market and Bond Funds: Dividends paid on money market and bond funds are generally nonqualified dividends. As such, these dividends are generally reported only in line 1a of Form 1099-DIV.
For guidance on determining whether your dividends qualify for taxation at the Long-Term Capital Gains
rate, see IRS Publication 550 or the instructions to IRS Form 1040.
Total Capital Gain Distributions (2a) – Total capital gain distributions (long-term) from a mutual fund or
REIT are included in this section of your Tax Statement. Report total capital gain distributions on Form
1040, Schedule D, line 13, regardless of how long you held your investment. If your capital gain distributions contain additional classifications, your Tax Information Statement will include separate Capital
Gain Distributions lines 2b, 2c and 2d.
Unrecaptured Section 1250 Gain (2b), Section 1202 Gain (2c), Collectibles (28%) Gain (2d) – If your Tax
Information Statement contains amounts on any of these lines, see the Instructions for IRS Form 1040,
Schedule D (Capital Gains and Losses) for information on how to report this income.
Non-dividend Distributions (3) – Certain payments represent non-dividend distributions because they
are a return of capital. You must reduce your cost (or other basis) by the amount of the non-dividend
distribution for the purposes of calculating the gain or loss when the security is sold. If your security is a
covered security Hilliard will adjust the basis in our cost basis system for you. Once you have received
an amount equal to your cost (or other basis) for the security, further distributions are taxable as a capital gain. Please review your distributions on non-covered securities carefully to determine whether any
represent a return of capital.
Federal Income Tax Withheld (4) – Report federal income tax withheld (backup withholding) as a payment on IRS Form 1040, line 64. Federal income tax withheld is 28% of the dividend distribution (including short-term capital gains, long-term capital gains and redemptions).
Investment Expenses (5) – Your share of investment expenses is reported on line 5. You may be able to
deduct these expenses (subject to 2% limit) on the “other expenses” line on Form 1040, Schedule A,
line 23.
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Foreign Tax Paid (6) – Your Tax Statement includes foreign tax paid (withheld) from foreign-source dividends credited to your account.
Cash and Noncash Liquidation Distributions (8 and 9) – Generally, liquidation distributions are treated
as amounts received from the sale or exchange of a capital asset and should be reported on IRS Form
8949 and Form 1040, Schedule D.
Dividend Reinvestment Plans – Your dividends may have been reinvested pursuant to a dividend reinvestment plan. Reinvested dividends are reported in this section of your Tax Information Statement as
if a cash dividend was credited to your account.
State Tax-Exempt Income – Tax-exempt income is reported on Form 1099-INT as Tax-Exempt Interest
(8), and as Specified Private Activity Bond Interest (9), if applicable. Line 10 reports the CUSIP number(s), if any, of the tax-exempt bond(s) for which tax-exempt interest is reported on line 8. Please refer
to the report of source percentages, later in your package, for your tax exempt income.
IRS Form 2439 – If you own shares in a mutual fund that paid tax on undistributed long-term capital
gains, we will issue IRS Form 2439 (Notice to Shareholder of Undistributed Long-Term Capital Gains) to
you at the end of March. This information is provided to us after the close of the fund’s tax year and will
be sent to you in a separate mailing shortly after the information is made available by the issuer.
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The Tax Statement’s Detail for Dividends and Distributions breaks down dividends and distributions by
payment, then totals them. The detail provides the security description, CUSIP or symbol, state (if relevant), date of payment, amount, type, and notes.
Report Total Ordinary Dividends (1099-DIV, item 1a) on IRS Form 1040, Schedule B, line 5 as shown below.
Total Qualified Dividends are entered on the IRS Form 1040, line 9b (see further below).
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Dividends and Distributions 1099-DIV
Transfer the total of all ordinary dividends from IRS Form 1040, Schedule B, line 5, to IRS Form 1040,
line 9a, as shown below. Note the Qualified Dividends are placed on Line 9b.
Report Qualified Dividends on IRS Form 1040, line 9b, as shown above. The amount of qualified dividends you report on IRS Form 1040, line 9b, may be less than the amount of qualified dividends
reported on your Tax Information Statement. Some dividends that we report as qualified dividends may
not be based on your individual circumstances. If you have qualified dividends you should use the Qualified Dividends and Capital Gain Tax Worksheet in the IRS Instructions to Form 1040, or the Schedule D
Tax Worksheet in the Instructions to Schedule D, whichever applies, to calculate your tax. The Instructions to IRS Form 1040 and Schedule D tell you which Tax Worksheet to complete to calculate your tax.
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Interest Income
The amounts reported in this section of your Tax Statement reflect interest income credited to your
account. The summary section reflects four totals for interest income: Interest Income, Interest on U.S.
Savings Bonds and Treasury Obligations, Tax-Exempt Interest, and Specified Private Activity Bond Interest. We report these totals separately to the IRS, so you should report each total separately on your tax
return.
Interest Income (1) – Interest income reported on this line was paid by corporations (U.S. and foreign)
and U.S. government agencies, and may include interest on your credit balances. Total interest
income reported on this line is also reported in the summary section of your Tax Statement as Interest Income. You should report this total as an item on IRS Form 1040, Schedule B, line 1.
Interest on U.S. Savings Bonds and Treasury Obligations (3) – Interest Income on this line was paid on
U.S. Treasury notes, bonds, and bills. This interest income is not included in Interest Income (line 1),
Tax- Exempt Interest (line 8), or Specified Private Activity Bond Interest (line 9). Total Interest on U.S.
Savings Bonds and Treasury Obligations (line 3) is also reported in the summary section of your Tax
Information Statement. You should report total interest on U.S. savings bonds and Treasury obligations as an item on IRS Form 1040, Schedule B, line 1 also.
Investment Expenses (5) – The amount reported on this line represents your allocable share of investment expenses and may be attributed to direct investments such as UITs, WHFITs and WHMTs.
Foreign Tax Paid (7) – This amount represents taxes paid to foreign governments on interest from foreign sourced assets. You may be able to claim these taxes as a credit or as an itemized deduction on
your federal income tax return.
Tax-Exempt Interest (8) – Interest income reported on this line represents interest paid on bonds
issued by U.S. states, the District of Columbia, a U.S. possession, an Indian tribal government or a political subdivision. Total interest income reported on this line is also reported in the detail section of your
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Tax Information Statement as Detail for Tax-Exempt Interest. Generally, individuals should report this
total on IRS Form 1040, line 8b.
Specified Private Activity Bond Interest (AMT) (9) – Interest income reported in this column was paid
from specified private activity bonds. This interest may be considered in your alternative minimum tax
(AMT) calculation, and is included in the Tax-Exempt Interest (line 8). You may be required to report
this total on IRS Form 6251, Alternative Minimum Tax – Individuals.
Market Discount (10) – If purchased at a market discount and the taxpayer has elected to recognize
market discount income currently this box captures the annual reportable amount.
Bond Premium Amounts (11, 12, 13) – These boxes capture specific types of bond premium that can
offset interest income and reduce basis. Tax-exempt bond premium is a reduction in basis only.
The supporting Detail for Interest Income shows payments, indicating amount and other details.
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For reporting purposes, the IRS permits reporting interest net of premium amortization on the interest
line or gross with the premium displayed in boxes 11 through 13. Hilliard will show your interest in gross
amounts with the corresponding premium reflected on the appropriate premium line. Note that the
reporting of premium amortization is required only for covered securities.
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Interest Income 1099-INT
Other Statement Forms
The Composite 1099 Tax Statement also includes reporting information for Regulated Futures Contracts and REMIC and WHFIT Statements. There are information schedules that present mutual fund
and UIT Supplemental Tax Detail, Tax-Exempt Interest Detail, and other miscellaneous schedules. If you
receive any of these and need explanation beyond what appears on the Tax Statement, you should
consult your tax preparer.
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Tax Terms and Rules You May Need to Know
This final section of your Tax Guide is meant to clarify some of the more complex tax treatments of
securities on your Composite 1099 Tax Statement. We also furnish a Glossary below, which focuses on
federal Cost Basis regulations and terms from some of the other tax regulations that are incorporated
into basis tax information reporting (in particular, those addressing wash sales, inheritances, and gifts).
Section 1234 Options – The sale of a Section 1234 option (puts and calls on stocks) is reported on a
Form 1099-B. But the manner of reporting depends upon which side of the option you are on. If you
buy a put or call, then the cost to purchase the option is your cost basis and is reported on the Form
1099-B, Box 1e “Cost or other basis.” But if you sell a put or a call (write the option), the amount you
pay to close out the position (the money paid to buy back the call) is treated as negative proceeds.
When we report a purchase and then sale of an option to you, it will have “Proceeds” in Box 1d and
“Cost or other basis” in Box 1e. When we report your closing of a written option (you buy the option to
close) we will report the net amount of your proceeds from the original sale and the cost to close it
netted in Box 1d “Proceeds.” If the option expires, we will report to you only proceeds with no associated cost. If you buy the option to close and pay more than your original proceeds from the sale, we
will report a netted, negative proceeds amount to you in Box 1d.
When you exercise a covered option (bought on or after 1/1/2014) or you get assigned on a covered
option, we must fold in the premium you received or paid on the option into the basis of the underlying stock or proceeds of sale from the underlying shares. When the transaction is reported, Box 6 will
be checked to indicate “Net proceeds.”
Section 1256 Options – A Section 1256 option is also known as a “non-equity” option. Our cost basis
system can identify such options for proper tax reporting treatment. In general, a Section 1256 option
must be listed on an exchange and must not be on a single stock. For example, an option on a bond
would be a Section 1256 option, but an option on IBM stock would not. If the option is on an index of
stocks, it may be a Section 1256 option if it is a cash-settled option on a broad-based index of securities. Our cost basis system will figure that out.
Section 1256 options are reported differently from Section 1234 options. A Section 1256 option is
reported like a Regulated Futures Contract is. These options are marked to market over year end, and
they can be netted together on a single Form 1099-B for reporting purposes. There is no tracking of
duration, because any gain or loss is split 64/40 Long-term/Short-term. This does present a unique situation when a Section 1256 option is exercised (ex. an option to buy a bond). Because of the 60/40 concept, the underlying premium related to the option is never folded into the security involved in the
exercise. Instead, we must report the transaction in two segments. The option is treated as if it expired
and a Form 1099-B is issued for it. Note the gain or loss will be 60/40. The underlying security is purchased or sold according to the option price but not with the premium folded in. When that transaction is closed, a 1099-B will be issued solely related to the bond’s proceeds and cost, with duration
being determined by the holding period of the bond.
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“Complex” Debt – Complex debt are securities that the IRS determined required substantial system
preparation work by the paying agent before proper tracking of basis could occur. As such, complex
debt was the last grouping of securities to become subject to basis tracking. As of 1/1/17, the following
types of debt instruments and others became covered securities:











a variable-rate debt instrument;
a stepped-rate debt instrument;
a contingent-payment debt instrument;
an inflation-indexed security;
a convertible debt instrument;
a reverse convertible debt instrument and other debt issued as part of an investment unit;
a stripped bond or stripped coupon;
a debt instrument paying or denominated in a foreign currency;
a tax credit debt instrument;
a debt instrument that provides for a payment-in-kind (PIK) feature; and
a debt instrument issued by a non-U.S. issuer.
The tracking of basis on these securities is extremely complex, as they have unique structures and payment terms that are generally singled out for special treatment under the tax code. The regulations specific to some of these instruments address the interaction of the securities with other fixed income
regulations (premium, discount and OID rules, currency conversion, etc.). The result is that tax rules can
vary significantly on treatment of premium and discount, the manner in which OID may accrue may
require special treatment for foreign denominated securities, the calculation of yield may be modified
or subject to revision during the instrument’s life, non-QSI payments by the issuer may be applied differently, and many other tax aspects vary from the basis bond that simply pays QSI or OID. If you have
purchased any of these instruments, you may need to consult your tax advisor when reviewing our 1099
reporting of income, sales, or credits resulting from these investments to help you gain a better understanding of why we report on transactions arising from these securities as we do.
Fixed Income Elections – Cost basis rules require that we amortize premium for both your taxable and
nontaxable bonds. You can elect to not amortize for your taxable bonds, and we will not do so. You can
also elect to accrete market discount on your bonds. Such an election would lead to more taxable interest each year but a smaller capital gain (or greater loss) when sold. We default to not accreting discount,
so if you have not made a market discount election, you will not recognize any current income for this.
Gifted Securities – Gifted securities present an unusual twist for basis and duration tracking. If you
receive a gift of securities, the basis attached will either be the basis that the donor had in the security
or the fair market value (FMV) on the date of the gift. The holding period will either be that of the
donor or begin on the date of the gift. The actual basis amount and holding period may not be determinable until you sell the securities.
If the FMV of the securities is equal to or greater than the donor’s adjusted basis at the time of the gift,
we will use the donor’s adjusted basis at the time you received the gift for calculating gain or loss. But
if the FMV of the security at the time of the gift was less than the donor’s adjusted basis, your basis will
depend on whether you have a gain or a loss when you sell the securities. Your basis for figuring gain is
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the same as the donor’s adjusted basis plus or minus any required adjustment to basis while you held
the security. Your basis for figuring loss is the FMV when you received the gift plus or minus any
required adjustments to basis while you held the security. But if you use the donor’s adjusted basis for
figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, we will report
neither gain nor loss on the sale of the securities. This is confusing, but at the time of sale, our cost
basis system will make the proper calculations and attribute the correct basis to the shares. Here is
an example:
You received stock as a gift. At the time of the gift, the stock had an FMV of $8,000. The
donor’s adjusted basis was $10,000. After you received the stock, no events occurred to
increase or decrease your basis. If you sell the stock for $12,000, you will have a $2,000 gain
because you must use the donor’s adjusted basis at the time of the gift ($10,000) as your basis
to figure gain. If you sell the stock for $7,000, you will have a $1,000 loss because you must use
the FMV at the time of the gift ($8,000) as your basis to figure a loss. If the sales price is
between $8,000 and $10,000, you have neither gain nor loss. For instance, if the sales price
was $9,000 and you tried to figure a gain using the donor’s adjusted basis ($10,000), you
would get a $1,000 loss. If you then tried to figure a loss using the FMV ($8,000), you would get
a $1,000 gain.
Inherited Securities – If you received securities from an estate and they were transferred in to Hilliard,
they may have basis attached to them. If the securities were acquired by the decedent before they
were considered covered (equities – 1/1/2011, mutual funds – 1/1/2012, options and less complex
bonds – 1/1/2014, complex bonds – 1/1/2016), then it is unlikely the transferring broker would have
had the original basis. But in general, the basis of inherited securities is the value of the security on
the date of death or six months after under certain conditions. So we can track the basis for you, even
though the securities may not have been covered. Also, remember that when a security is inherited
its duration for holding purposes automatically becomes long-term.
Premium Amortization – Bond premiums must be amortized per IRS regulations.
 Premium on a taxable bond is amortized based upon a “yield-to-best” calculation. This means our
amortization schedule (the time over which we will divide the premium you paid to acquire the
bond) will go to the point where your return on the investment would be the highest percentage
rate. When premium is amortized annually, the amount for the year is used to offset your interest
income on the bond. If the amount is greater than the interest income, tax rules permit rolling the
amount forward or taking a deduction on your income tax return.
 Premium on a tax-exempt bond must be amortized annually and be used to reduce your basis in the
bond. The amortization schedule is the “yield-to-worst,” meaning it will go to the call or redemption
point that provides the lowest return on investment. Amortizing and reducing basis will ultimately
increase your capital gain or reduce your capital loss. From a tax perspective, the premium is deemed
to have been paid to generate the tax-free income stream and not the bond itself, which is why it is
amortized as the interest is earned.
Short Sales – Reporting a short sale can sometimes create confusion. The date information placed into
Boxes 1b and 1c can be different from the information placed into the same boxes when reporting the
sale of a long position. For Short Sale reporting, Box 1b “Date acquired” (purchase date) reports the
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date the securities delivered to close the Short Sale were acquired. Box 1c “Date sold or disposed”
reports the date those securities were delivered to close the short sale. Although the Form 1099-B is
reporting a sale, neither date reports the actual date of the original short sale.
In general, duration tracking is not necessary for a short sale as it is almost always short-term. If the
shares delivered to cover the short sale (Box 1b) were acquired more than a year before the short sale
was entered into, then the transaction would be long-term.
The potential confusion surrounding the appropriate dates to report can be compounded by the divergence of our reporting obligation and your tax liability for a particular year-end sale scenario in which
the dates straddle two years. Consider a purchase on December 31 to close an open short position. This
transaction would settle no earlier than January 4 of the following year. The January settlement date
would be the “date of sale or exchange” for the short sale, requiring us to report in the following year.
But for you, the situation is different if the trade is profitable. For a short sale that is profitable over
year end, taxpayers must treat the trade date of the purchase to close (occurring in the first year) as
the short sale’s closing date, even though the 1099-B we issue must indicate the settlement date
(occurring in year 2) as the purchase date. We must issue this 1099-B in the second year even though
you must include the transaction in your prior year’s tax filing. If the tax lot is closed for a loss, then
normal recognition would be required in the second year, coinciding with our issuing of the Form
1099-B.
Wash Sales – If you sold a security at a loss and repurchased it within a 61-day period, you cannot recognize the loss. It is considered a disallowed loss, and we must fold it into the basis of your replacement shares. Conceptually, this is to avoid the recognition of a loss while the taxpayer continues to
maintain the security position. The timeframe during which you cannot purchase replacement shares is
from 30 days before the date of sale that generated the disallowed loss to 30 days after the sale. The
duration of a security with a disallowed loss includes the number of days the original position that created the disallowed loss was open. So if you have a position that was open for 120 days and you fold
the loss into replacement shares, the date of acquisition is 120 days earlier than the date you acquired
the replacement shares. Note you do not carry the security acquisition date using the date you purchased the original shares; instead, you add the number of days that position was open to the replacement share date.
We are not required to track wash sales for anything but the same security, which is generally defined
as the same CUSIP or other identifying number. But the wash sale regulations require that you track
wash sales for “substantially similar” securities. This means you may have to treat options and stocks
as the same security for wash sale purposes, and some other securities as well (i.e., certain bonds, convertible stocks). We are also not required to “wash” your securities across accounts. So if we do maintain more than one account for you, we will not match IBM in one account with IBM in another
account. You will have to do this when you prepare your Schedule D.
The wash sale rules apply to retirement accounts as well. So if you sell a security in your taxable
account at a loss but within the 61-day window re-establish the position in your tax-free account, you
cannot take the disallowed loss. Instead, you must increase the basis in your tax-free shares, which is
of no value to you. This is a risk if you are not familiar with the wash sale rules.
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Glossary
61-Day Window – That period of 30 days before and 30 days after a transaction, plus the transaction
day itself, that gives rise to an indicated loss. Any acquisition that reestablishes part or all of that disposed-of position during the 61-day window will be considered a wash sale and its basis will be
adjusted to incorporate the disallowed loss.
1040 Form – Annual income tax return filed by individuals subject to US income tax.
1040X Form Amended Tax Return – A taxpayer is required to amend a Form 1040X to correct filing status, income, tax deductions, or tax credits. Given the change in regulations that raises the de minimis
threshold for corrections, such filings may be reduced.
1099 Forms – The 1099 forms make up a series of tax reporting forms that provide the taxpayer and
the IRS information on proceeds of sales and related basis (1099-B), dividend payments (1099-DIV),
interest payments (1099-INT), accrual of original issue discount (1099-OID), retirement payments
(1099-R), and other payment types.
Account-by-Account Basis – The application of the account-by-account basis means that you may use
the average basis method for RIC or DRP shares in one account but use a different basis determination
method for identical shares in another account. If you use the average basis method for RIC or DRP
shares, you must use the average basis method for all identical shares within that account, but you may
continue to use different basis determination methods for shares within the account that are not identical to the RIC or DRP shares.
Actual Basis – Actual basis for a tax lot is the total cost of the tax lot plus transactional impacts on the
individual lot (i.e., commissions, corporate actions, disallowed wash sale losses, etc.). Securities using
Actual Basis can be relieved from inventory by First-in, First-out or by Specific Identification, including
Standing Order strategies.
Adjusted Basis – The adjusted basis of a security is the total cost value attributed to a tax lot, computed
one of two ways. The Actual Cost Method uses the actual acquisition price of a tax lot plus any transactional impacts on the individual lot (e.g. commissions, corporate actions adjustments, etc.). The Average Cost Method uses the average of the Actual Cost of all tax lots of identical shares of stock divided
by the total number of shares.
Average Basis is calculated by aggregating the Actual Basis of all tax lots of identical shares of stock in
an account and dividing that number by the total number of those identical shares in the account.
When using Average Basis you can only use the First-in, First-out method of lot selection.
Basis Reporting - Term used for the reporting obligation on form 1099-B under the Cost Basis Reporting
regulations which will include the basis of shares sold as well as the proceeds of a security’s sale.
Broker Wash Sale Reporting Obligation – The broker wash sale reporting obligation is limited to reporting on identical (the same CUSIP) shares of covered stock bought and sold in the same account.
Covered Securities – Covered securities are those specified securities acquired on or after a date
certain established by the basis reporting legislation. A security can be a covered security only if it is
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bought or acquired after the effective date. A security cannot mature into covered status by being held
through the effective date for that security. In general, equities (including foreign securities) became
covered securities beginning in 2011, mutual funds and equities acquired in connection with a dividend
reinvestment plan (DRP) became covered in 2012, options and less complex fixed income instruments
became covered in 2014, and complex debt instruments became covered securities in 2016.
Default Method – Under the cost basis regulations, every brokerage firm and other custodian must
have a default method of lot relief for its customer accounts if the customer does not select another
permissible method of lot relief. Most brokerage firms use first-in, first-out as the default lot relief
method, while fund companies use average cost as a default.
Disallowed Loss – The loss on a transaction that is disallowed for tax deductibility purposes because it is
part of a wash sale string. The loss is used to adjust the basis (added to it) of the replacement shares
and will be recognized upon sale of the replacement shares.
Donee’s Basis – The donee’s basis will be the donor’s basis at the time the gift was given or the fair
market value of the security on the date of the gift, depending upon circumstances when the donee
sells the security.
Donor’s Basis – In the case of a gift, the donor’s basis is what the donor paid to acquire the securities,
adjusted for any corporate actions and other basis-affecting events while the donor held them. The
donor’s basis may become the donee’s basis in certain situations when the securities are sold by the
donee.
Duration – The length of time a security is held by a taxpayer. The duration of a holding period can be
long-term or short-term. For most security transactions, duration is calculated from the date of acquisition. For wash sale transactions, it is equal to the number of days the transactions in the wash sale
string are open.
Duty to Correct a 1099-B –Cost basis reporting regulations require that corrections to 1099-Bs be made
up to three years after filing the original 1099-B when a mistake is discovered. Previously, corrections
were required for all changes, as there was no de minimis exception for corrections. Under new regulations, a correction need not be made for dollar amounts less than $100 or withholding amounts less
than $25.
Duty to Correct a Transfer Statement – Cost basis reporting regulations require that corrections to
transfer statements be made up to 18 months after the transfer when a mistake is discovered.
Exempt Account – An exempt account is not subject to 1099-B reporting. Exempt accounts include IRA,
Roth IRA, and C corporation accounts.
Fair Market Value (FMV) – For purposes of valuing gifted and inherited securities that have an active
market, the fair market value is determined by calculating the average price between the highest and
lowest quoted selling prices on the valuation date, which may be the date of death or the date the gift
was given.
First-in, First-out – First-in, First-out (FIFO) is a lot-relief method that selects the earliest acquired securities for sale. Under new regulations, FIFO will be the default method used for lot relief from inventories
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by most brokers and custodians. The regulations require relieving tax lots of stock from inventory on a
FIFO basis unless the customer has elected another permissible method for the shares in question.
Identical Securities – Under the Cost Basis Reporting regulations, Identical Securities for wash sale
purposes are those securities with the same CUSIP number.
Indicated Loss – The loss on a transaction that may become disallowed under the wash sale rules if a
triggering stock transaction occurs.
Lot Relief Method – A lot relief method is the means by which a taxpayer selects tax lots for sale
from their security positions. Typical lot relief methods include First-in, First-out; Specific Identification; and Last-in, First-out.
Non-Exempt Account – A non-exempt account is an account subject to 1099-B reporting. This
includes taxable accounts owned by individual, partnership accounts, and (as of reporting year 2012)
S corporation accounts.
Phase-In Period – The period during which different securities classes become “covered” securities and
subject to the new 1099-B reporting. Coverage of security classes have been phasing in as follows:




Equities (including foreign securities and ADRs) – January 1, 2011
Mutual Funds (regulated investment companies) and equities participating in Dividend
Reinvestment Plans – January 1, 2012
Less-Complex Fixed Income, Options and Other Specified Securities – January 1, 2014
More-Complex Fixed Income, Certain Options – January 1, 2016
Replacement Shares – Shares bought that replace the original shares that were sold within a 61-day
wash sale window, or shares sold to replace an original short position that was closed within a 61day window.
Schedule D – Taxpayers use Schedule D of Form 1040 to report capital gains and losses on asset sales.
The Schedule D form segregates short-term capital gains and losses (for assets held one year or less)
from long-term capital gains and losses (for assets held more than one year). Specifically, for each type
of gain or loss, Schedule D requests the description of the property sold, the date acquired, the date
sold, the sales price, the cost or other basis, and the gain or loss.
Separate Account – The new regulations provide that covered securities are to be treated as held in a
separate account from securities that are non-covered regardless of when they were acquired and
regardless of whether they are physically held in the same account. This means that DRP and RIC shares
acquired before January 1, 2012, (non-covered) are to be treated as held in a separate account from any
DRP or RIC shares acquired on or after that date (covered).
Short Sale – A short sale occurs when an investor sells securities that the investor does not own and
then arranges to borrow securities that are delivered to settle the transaction. The short sale remains
open until the investor purchases shares to close it out by delivering those shares to the firm that lent
them to the investor at the time of the sale.
Specific Identification – Specific Identification provides the ability to select a specific tax lot for sale.
This can be done by identifying the tax lot on a per-trade basis or using a “standing order” to identify a
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tax lot. Under cost basis regulations, specific identification is a permissible lot relief methodology for all
securities except those that are “averaged priced,” which must be relieved on a FIFO basis. Use of specific identification on a per-trade basis (not a standing order) must confirm specific trade details to the
taxpayer for each transaction in which it is used. For example, “Security / Number of Shares / Lot
Acquisition Data / Basis of Lot / Lot ID Number / etc.”
Specified Securities – The term used for all securities subject to basis reporting under the new regulations. It is the entire universe of security types to which the law applies. The actual securities covered
are those bought after the phase-in dates, hence “covered” securities.
Standing Order – A standing order permits a taxpayer to use a tax strategy when employing specific
identification. The tax strategy must be a clearly defined method of specifically selecting stocks from
inventory based upon repeatable criteria. Last-in, first-out (LIFO) and highest–in, first-out (HIFO) are
two typical standing order lot relief methodologies. Use of a standing lot methodology must be confirmed to the taxpayer for each transaction in which it is used For example, “this trade was executed on
a LIFO basis.”
Substantially Identical Securities – A substantially identical security is so similar to another that the IRS
does not recognize a difference between them. Substantially identical securities can include both new
and old securities issued by a corporation that has undergone reorganization, convertible securities and
common stock of the same corporation, and options on stock and the underlying shares. Different
securities can even be substantially identical if they are linked together so that any change in the price
of one will be reflected in the price of another.
Taxpayer Wash Sale Reporting Obligation – Taxpayers must calculate wash sales for Schedule D
reporting. The obligation requires matching identical and substantially identical securities across all of
the taxpayer’s accounts, including IRA and Roth accounts.
Transfer of Short Sale with Borrowed Stock – A broker that receives in and maintains a short position
satisfied with borrowed stock at the previous broker must file a 1099-B for a sale that it did not effect.
Transfer Statement – Generally a written statement, in an agreed-upon format between the transferor
and transferee institutions, containing information about the securities being transferred, the owner,
and the transferor and transferee Institutions. A transfer statement for covered securities will contain
basis-related information including basis by lot, acquisition date, and duration period if the transferred
lot is a part of a wash sale string. Transfer statements for gifted and inherited securities must so indicate
on the statement and must include relevant market and/or cost values.
Triggering Stock – The purchase of replacement securities or new short position that places a prior loss
transaction into the status of a wash sale.
Wash Sale – A wash sale occurs when a security is sold at a loss and, within a period of 30 days before
or 30 days after the sale, the identical or “substantially identical” security is reestablished. Under these
circumstances, that loss will be disallowed and may not be considered in calculating a taxpayer’s losses
for income tax purposes.
Wash Sale String – Three or more transactions that, when linked together within the 61-day window, create a wash sale.
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