Cost Basis for Shareholders

Starting January 1, 2011, you may have noticed some changes in how your equity investments are handled. A new IRS regulation requires that brokers, transfer agents, and issuers report adjusted cost basis information to you and the IRS. You will be impacted in several ways:

• A new Form 1099-B will be sent to you by brokers and transfer agents whenever a covered stock sale takes place.
• When you transfer stock, you will be required to identify if the transaction is a sale, gift, or inheritance.
• FIFO is the default method for calculating your cost basis, although you may select specific lot identification by submitting a request in writing to the broker or transfer agent.
• If you opt for specific lot identification, you must select the tax lot you wish to sell prior to the transfer taking place.
• Short sales will be reported at the time the short is opened, rather than closed.
• You will be required to consolidate all Form 1099-B’s you receive from brokers and transfer agents, and adjust the information as necessary on Schedule D.

We have read, analyzed, and outlined the new IRS regulation and the direct impact it has on shareholders of equity securities.
To request a free copy of our exclusive Cost Basis Breakdown, please click here.
To read the regulation, click here.

Quick Tips & Highlights:

• Only stock that is acquired on or after January 1, 2011 is covered by these new reporting regulations.
• When you submit a transfer, indicate whether the transaction is a gift, sale, or inheritance.
• If it is an inheritance, provide the fair market value of the securities as of the date of death.
• If you do not indicate what type of transaction you are presenting to the transfer agent, gift tax rules will apply.
• You may only use averaging cost basis if your shares are part of a qualified dividend reinvestment plan.
• Shares that are held for more than five years will be subject to lower income tax rates (unless tax laws change between now and then…)

Useful Forms:

• Cost Basis Supplemental Worksheet
• Instructions to Transfer Stock