Important Tax and Regulatory Information

Your resource to find regulatory and supplemental information from National Financial Services LLC (NFS).

Important Tax Information

Understanding Your National Financial 2013 Tax Reporting Statement

Each year, we send tax statements to the National Financial Services LLC (National Financial) brokerage account customers our records indicate are subject to Internal Revenue Service (IRS) Form 1099 reporting. This guide can help you understand your tax statement, which provides information that you will need when you complete your federal and state income tax returns.

National Financial's 2013 tax reporting statement consists of two parts:

The pictures from a statement, presented below, are for illustrative purposes only. Certain categories of transactions may not pertain to your account as your individual statement is generated based on your account activity. For instance, your statement will only include a Form 1099-B and/or a Form 1099-OID if you had any applicable 2013 transactions.

Tax Reporting Statement

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1099-DIV — Dividends and Distributions

Lists all taxable dividends, long-term capital gain distributions, nondividend distributions, and certain investment expenses, foreign tax paid, and tax-exempt interest dividends and private activity bond interest dividends (mainly from mutual funds or other regulated investment companies). The 1099-DIV information may include dividends and/or distributions from the mutual fund you use as your core money market fund. When computing any Alternative Minimum Tax (AMT) liability (see the IRS Instructions for Form 6251, Alternative Minimum Tax–Individuals (PDF)), the IRS requires you to include any private activity bond interest dividends in this calculation. Dividends and capital gain distributions reported on Form 1099-DIV must be reported on your federal income tax return regardless of whether they were paid in cash or reinvested.

We report all dividends in U.S. dollars (USD). If the dividends that you received were paid in a currency other than USD, we convert the foreign currency dividends into USD and report the USD equivalent on Form 1099-DIV.

The dividend amounts that we report may be higher than the amounts that you actually received. For example, if foreign tax was paid, the amount that you may be able to claim as a deduction or credit is reported on Line 6 on Form 1099-DIV and that amount is also included in the dividend amount reported in Line 1a and, if applicable, Line 1b. For this reason, the total dividends reported on the form may be higher than the amount that you actually received.

IRS reporting requirements governing widely held fixed investment trusts (WHFITs) are another situation where National Financial may report a dividend amount higher than the amount you may have received. If you owned certain unit investment trusts or HOLDRS trusts, National Financial reports investment expenses on Line 5. We also include those expenses in the dividends reported in Line 1a, because we are required to report gross trust dividends including expenses. Because we are reporting gross dividends, the total dividends reported on the form may be higher than the amount that you actually received. The same situation may occur for tax-exempt interest dividends, reported in line 10. These expenses are not included in line 5. Instead, they are listed in the Supplemental Tax-Exempt Investment Expense section, which you may find near the end of your statement if there are appropriate expenses to report. Investment expenses may be deductible, subject to applicable limitations. For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor.

1099-INT — Interest Income

Lists all interest you earned on government and corporate debt obligations and short-term certificates of deposit, as well as interest earned from cash in your account.

Line 8 reports tax-exempt interest from individual securities, but not from mutual funds or other regulated investment companies. We report those tax-exempt interest dividends on Form 1099-DIV, as described above. In addition to your federal tax return, you may also be required to report this information on your state income tax return.

Line 9 reports any applicable specified private activity bond interest. Specified private activity bond interest must be taken into account in computing the federal Alternative Minimum Tax (AMT). The tax-exempt interest reported on Line 8 includes this specified private activity bond interest, if any. For more information, see the IRS Instructions for Form 6251, Alternative Minimum Tax–Individuals. In addition to federal reporting, National Financial may be required to report all or a portion of your total exempt income to California or to other state tax authorities.

Line 10 shows CUSIP numbers for tax-exempt securities on which tax-exempt interest was paid to you during the calendar year and reported on Line 8. In cases in which we are reporting tax-exempt interest from more than one CUSIP, the line is marked "various."

Due to IRS reporting requirements governing widely held fixed investment trusts (WHFITs), for certain unit investment trusts or mortgage-backed securities distributing taxable interest, National Financial reports your prorated share of investment expenses in Line 5. Those expenses are also included in the interest reported in Line 1, because we are required to report your share of any unit investment trust or mortgage-backed security gross interest before expenses were subtracted. For this reason, the interest reported on the form may be higher than the amount that you actually received. In the same manner, we also include your prorated share of tax-exempt interest investment expenses in the amount reported in tax-exempt interest on Line 8. We provide details on those expenses in the Tax-Exempt Interest Investment Expenses section (shown if applicable) near the end of the supplemental section of your tax statement. Investment expenses may be deductible, subject to applicable limitations. For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor.

We report all interest in U.S. dollars (USD). If the interest that you received was paid in a currency other than USD, we convert the foreign currency interest into USD and report the USD equivalent on Form 1099-INT.

1099-MISC — Miscellaneous Income

Lists other reportable income, such as royalty payments from grantor trusts, other income, and substitute payments made in lieu of dividends. Royalty payments are generally reported on your federal income tax return, Form 1040, Schedule E.

Beginning with 2013, we report Line 3, Other Income, on this consolidated Tax Reporting Statement. In past years, we reported Other Income on a statement, mailed separately. Other Income includes credit adjustments for substitute payments in lieu of qualified dividends, or certain credits, adjustments, or other income. Following IRS regulations, National Financial reports Other Income if you received other miscellaneous income totaling at least $600 during the tax year. We determine your total other income by adding together the other miscellaneous income amounts in all your accounts (under the same Taxpayer ID) for which National Financial Services LLC (NFS) is the payer. See the FAQ in this guide, "I did not receive a separate Form 1099-MISC, reporting "Other Income," (Line 3). Where is it?"

Substitute payments in lieu of dividends are generally reported on the "Other Income" line of your federal income tax return, Form 1040, and should be taxed at federal ordinary income tax rates.

Due to IRS reporting requirements governing widely held fixed investment trusts, if you owned certain royalty or HOLDRS trusts, National Financial reports various expenses, as well as adjustments that affect the estimated cost basis of your shares, in the applicable supplemental sections of your tax statement. We also include your prorated share of those expenses in the royalties (Line 2) reported in the 1099-MISC, because we are required to report your royalties before expenses were subtracted. For this reason, National Financial may report a higher amount of royalties than the amount that you actually received. Investment expenses may be deductible, subject to applicable limitations. In addition, by March 17, if you owned a royalty trust, National Financial may post online additional information relayed to us by the royalty trust. For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor.

Summary of Proceeds from Broker and Barter Exchange Transactions

Lists gross proceeds less commissions from sales.

Summary of Original Issue Discount

Lists total original issue discount.

1099-B — Proceeds from Broker and Barter Exchange Transactions

Form 1099-B lists all proceeds from the sale or other disposition of stocks, bonds, mutual funds; subscription rights expiring with a cash equivalent, taxable tenders and mergers; and short sales if opened no earlier than 2011 and closed in 2013. We report all transactions on a trade-date basis and they are the net amount after commissions. The cost basis reported reflects certain adjustments, if applicable. You may be required to make additional adjustments to properly calculate your taxable gain/loss. We are required to report most 1099-B information to you and the IRS.

To complete your federal income tax return, you are required to provide the cost basis for shares you sold in the past year in order to determine your realized gain or loss. Lower tax rates (20%, 15%, or, for those taxpayers in the two lowest tax brackets, 0%) apply to any long-term capital gains realized on the sale or redemption of securities (including the exchange of mutual fund shares). In general, customers must report the information from Form 1099-B by completing Form 8949 (PDF) and/or Form 1040, Schedule D (PDF).

2013 update on cost basis reporting to the IRS

The IRS provided financial institutions with further details concerning their cost basis reporting responsibilities for "covered securities" during and following the multiyear implementation period which began in 2011. They recently provided cost basis reporting details for fixed income securities and for options.

Covered securities
Generally, the regulations define covered securities as:

  • 2011 – Stock in a corporation purchased on or after January 1, 2011 (not including stocks eligible for average basis)
  • 2012 – Shares of registered investment companies, including open-end mutual funds, and stocks acquired in dividend reinvestment plans (DRIPs), purchased on or after January 1, 2012
  • 2014 – Less complex debt securities that have a single fixed payment schedule as well as a maturity date, and were acquired on or after January 1, 2014. Equity options and Section 1256 options, as defined by the IRS, also qualify as covered securities as of the same acquisition date.
  • 2015 – Transfer statement reporting (for example, when you move your account from one firm to another) begins for all equity options and less complex fixed income securities.
  • 2016 – Complex debt instruments (acquired on or after January 1, 2016), including those with more than one stated rate of interest, convertible debt, stripped bonds or stripped coupons, non-dollar-denominated debt, tax credit bonds, debt with a payment in kind (PIK) feature, foreign debt issued by a non-U.S. issuer, contingent payment debt, and inflation-indexed debt.
  • 2017 – Transfer statement reporting by brokers begins for all complex debt issues that are covered as of January 1, 2016.

Noncovered securities

Noncovered securities include the types of securities, described above, whose acquisition and/or disposition dates are older than the applicable dates for covered securities. When the information is available in our records, National Financial also provides cost basis information for sales, redemptions, and exchanges of noncovered securities in separate sections of Form 1099-B. However, we do not report this cost basis information to the IRS.

The following securities are classified as noncovered:

  • Short-term debt (maturity of less than 366 days)
  • Real estate mortgage investment conduits (REMICs)
  • Securities from the Federal National Mortgage Association and the Government National Mortgage Association (Freddy Macs and Ginny Maes)

How National Financial reports covered and noncovered shares on Form 1099-B*

In order to facilitate completing Form 8949 and/or Schedule D, your Form 1099-B presents information in an order similar to the 8949/Schedule D order. Form 1099-B also presents information in as many as five different sections: short-term covered, short-term noncovered, long-term covered, long-term noncovered, and a section for transactions whose basis is not reported to the IRS and whose term is unknown.

National Financial has provided most of this cost basis information to customers for many years. It is the requirement that we also convey cost basis information to the IRS that is at the heart of the changes to Form 1099-B. Prior to 2011, National Financial provided cost basis information in the Supplemental Realized Gain/Loss Sections of the Tax Reporting Statement. Beginning with tax year 2011, we moved most of this information to Form 1099-B.

For every transaction reported on the 1099-B (whether concerning a covered or noncovered security), National Financial reports the following information to the IRS:

  • Description (8)
  • Date of Sale or Exchange (1a)
  • Sales Price (2a)
  • Federal Income Tax Withheld (4)

Note that the numbers following each category correspond to the equivalent box numbers on the stand-alone IRS Form 1099-B.

The cost basis information that we provide to the IRS, when applicable, includes

  • Date of Acquisition (1b)
  • The holding period of the security that you sold (short-term, long-term or unknown) (1c)
  • Cost Basis (3)
  • Wash Sale Loss Disallowed (5)
  • Basis is reported to the IRS (6)

The supplemental realized gain/loss sections in your 2013 tax statement continue to provide additional cost basis information for fixed-income securities purchased either above or below par, for options transactions, and for security transactions conducted in a currency other than U.S. dollars.

Generally, as you complete your tax returns, you must report all transactions from Form 1099-B and any other transactions including those listed on the Supplemental Realized Gain/Loss sections of the tax statement, whether for covered or non-covered securities.

Here is a summary of where you will find transaction information for various kinds of securities.

Type of Security Location of Cost Basis Information in Your Tax Statement
  • Equities
  • Mutual funds and other securities in dividend reinvestment plans
  • Fixed-income securities without adjustments
  • Short sales opened in 2011-2013 and closed during 2013
1099-B Only
  • Foreign equities
  • Foreign fixed-income securities
  • Domestic fixed-income securities with cost basis adjustments
1099-B
Additional information is also provided in the Realized Gain/Loss sections of the supplemental pages
  • Options
  • Short sales, opened prior to 2011 and closed in 2013
  • Foreign currency transactions
Supplemental Realized Gain/Loss sections only

Mutual funds and other securities in dividend reinvestment plans (DRIPs)—bifurcation of information

National Financial reports cost basis on the 1099-B to you and the IRS (for covered shares only) using the average cost method, unless you specified another applicable method prior to trade settlement.

Positions, using the average cost calculation method, that include both noncovered and covered shares are considered bifurcated. As such, these positions comprise the following:

Shares acquired prior to January 1, 2012

Additional share purchases that occur on or after January 1, 2012, of the same mutual fund

For mutual fund positions that are considered bifurcated:

The average cost basis for covered and noncovered lots is calculated separately.

National Financial only reports cost basis for covered lots to the IRS. It does not report cost basis for noncovered lots to the IRS.

Reporting short sales. Beginning with tax year 2011, the new IRS cost basis reporting rules require us to report on Form 1099-B all short sales in the year in which the short sale is closed. Before tax year 2011, we were also required to report short sales on Form 1099-B, but only when they were opened. Short sales opened prior to 2011 and closed in 2013 are an exception to this rule. Those transactions are reported instead in the Supplemental Realized Gain/Loss sections of your tax statement. In this way, we will avoid reporting the same short sale twice to the IRS. The IRS generally requires shareholders to report all short sales in the year that the short sale is closed—this is not a change from prior years.

Widely held fixed investment trusts (WHFITs) reporting—return of principal. Due to IRS reporting requirements governing WHFITs, we report your prorated share of the sales proceeds from the portfolios of unit investment trusts, securities derived from mortgage pools, or real estate mortgage investment conduits (REMICs) as return of principal on Form 1099-B (reported as PRINCIPAL on the form). We report your share of return of principal, whether or not you actually received a payment, because we report gross return of principal before any expenses were deducted. These reported proceeds may not match any distributions that you may have received during the year. Furthermore, for WHFIT securities, due to "receipt-based" reporting rules, your trust is required to report your prorated share of sales proceeds as of the date that they were sold by the trust and your prorated share of expenses as of the date on which they were incurred by the trust—not on the date any such sales proceeds are distributed to shareholders. This means that you may only have received a return of principal payment, listed on your 2013 Form 1099-B, in January or February 2014. You must generally report return of principal on Form 8949 and/or Schedule D in order to match our reporting to the IRS on Form 1099-B. In addition, you should generally reduce your security's basis by the amount of the return of principal. National Financial includes return of principal in our calculation of your estimated cost basis. If your basis is reduced to zero, any additional return of principal should also be reported as a short-term or a long-term gain, depending upon how long you have owned the security.

Foreign securities. We report all proceeds in U.S. dollars (USD) on Form 1099-B. If the proceeds that you received from a transaction were paid in a currency other than USD, we convert those foreign currency proceeds into USD based on exchange rates on the trade date of the transaction, and report those USD-equivalent proceeds on Form 1099-B. We provide additional information regarding such transactions in the Realized Gain/Loss sections of the Supplemental Information pages of this statement.

*National Financial will report gross proceeds as well as certain cost basis and holding period information to you and to the IRS on your annual Form 1099-B as required or allowed by law, but such information may not reflect adjustments required for your tax reporting purposes. Taxpayers should verify such information when calculating reportable gain or loss. National Financial specifically disclaims any liability arising out of a customer's use of, or any tax position taken in reliance upon, such information. Unless otherwise specified, National Financial determines cost basis at the time of sale based on the average cost method for open-end mutual funds and based on the first-in, first-out (FIFO) method for all other securities. Consult your tax advisor for further information.

1099-OID — Original Issue Discount
Lists the Original Issue Discount (OID) that you must report for the current year. OID reports the earned portion of the difference between the stated redemption price at maturity (if greater than one year) and the issue price of a bond, debenture, note, or other evidence of indebtedness issued at a discount (e.g., zero-coupon bond, long-term CD) that is attributable to the selected tax year. OID on Treasury obligations, listed in Column 8, is exempt from state and local income taxes. If you hold collateralized debt obligations (CDOs), which include real estate mortgage investment conduits (REMICs) and collateralized mortgage obligations (CMOs), you may receive a separate 1099-OID form in March to report this OID. You may need to make certain adjustments to this information. Consult your tax advisor or see IRS Publication 1212 Guide to Original Issue Discount (OID) Instruments (PDF) for more specific reporting information.

Supplemental Information

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The Details of 1099-DIV Transactions section is divided into three subsections: Total Ordinary Dividends and Distributions Detail; Total Capital Gains Distributions Detail; and Other Distributions, Tax, and Expense Details. Each of these subsections appears only if they apply to the transactions reported on your 1099-DIV.

Details of 1099-Div Transactions

We identify the short-term capital gain distributions portion of ordinary dividend distributions in this section. Generally, short-term capital gain distributions are nonqualified dividends, and, as such, are taxed as ordinary income. However, a portion of the short-term capital gain distribution may be a qualified dividend and subject to one of the lower federal long-term capital gain tax rates. Any portion of the short-term capital gain distribution that is potentially subject to one of the lower tax rates is included as qualified dividends in Line 1b.

Form 1099-DIV provides tax-exempt interest dividend and specified private activity bond interest dividend amounts (mainly from mutual funds or other regulated investment companies) on lines 10 and 11.

Any reported foreign tax paid on Line 6 is also included in the dividends reported on Line 1a and, if applicable, Line 1b. For mutual funds, you will see such individual foreign tax entries (Line 6) as part or all of certain matching individual entries for Lines 1a and 1b. For individual securities we do not give such a payment-by-payment accounting.

Due to IRS reporting requirements governing widely held fixed investment trusts (WHFITs), the dividend amounts that we report for these securities may be higher than the amounts that you actually received. In each case this is due to the requirement that we report gross dividends before any expenses have been deducted. For WHFITs, dividends are reported as of the declaration date, not the distribution date.

Undistributed income from a unit investment trust (UIT). You may find a 12/31 reporting item from your UIT, listed for Lines 1 and/or 2, which is income undistributed by your trust. Due to IRS reporting requirements, we report this income, even if it was undistributed. Once distributed in the following year, this income will be reported as a positive amount (since you have now received a distribution) and a negative amount (since it was previously listed as an undistributed distribution), thereby avoiding reporting the same distribution twice.

Details of 1099-Div Transactions

Total Capital Gain Distributions (2a) may include, if applicable, Unrecaptured Section 1250 Gain (2b), Section 1202 (28%) Gain (2c), and Gains from Collectibles (28%) (2d). The portion of Capital Gain Distributions subject to 15% Rate Gain is equal to (2a) less amounts shown in columns (2b) through (2d). There is also a separate column, listing these 15% rate gain details in this section.


Details of 1099-INT Transactions

Nondividend distributions, state tax withholding information (applicable this year to a small number of California residents only), as well as investment expense details and employer-sponsored stock plan liquidation distribution information are all listed in this section.

The amount of any non-dividend distributions (column 3) you received generally reduces the basis for the applicable security by the same amount of the distribution.

If you owned certain unit investment trusts, or HOLDRS trusts, National Financial reports the investment expense details for expenses reported on Line 5. We also include those expenses in the dividends that we report. For this reason, the total reported gross dividends may be higher than the amount that you actually received. Investment expenses are generally deductible, subject to applicable limitations. Tax-exempt interest dividend details, reported in column 10, are not included in line 5. Instead, they are listed in the Supplemental Tax-Exempt Investment Expense section which you may find near the end of your statement if there are appropriate expenses to report.

For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor.

We present Interest Income details in two subsections: Interest Income Details, including Corporate and Tax-Exempt Obligations, and Other Interest Details, including U.S. Government Securities. Each of these subsections appears only if they apply to the amounts reported on your 1099-INT.

Details of 1099-INT Transactions

We show Interest Income (1) details (a combination of Interest Payments received, Accrued Interest received on the Sale of Bonds, and OID Paid to you on Short-Term Instruments), as well as Tax-Exempt Interest (8), Specified Private Activity Bond Interest (9), and Foreign Tax Paid (6) details in this subsection. Any Specified Private Activity Bond Interest (9) amounts are also included in the Tax-Exempt Interest (8) column. Generally Specified Private Activity Bond Interest must be included in the calculation of Alternative Minimum Tax (AMT).

Details of 1099-INT Transactions

We show Interest on U.S. Savings Bonds and Treasury Obligations (3) (a combination of Interest Payments on Treasury Bonds and Notes, Accrued Interest you received on the Sale of Treasury Instruments, and U.S. T-Bill Interest) in this subsection, as well as Federal Income Tax Withheld (if any) on interest reported on the 1099-INT.

IRS reporting requirements governing widely held fixed investment trusts (WHFITs)

Due to the WHFIT requirements, we must generally report income based upon the date it is received by the trust and expenses as they are incurred by the trust. Here are some of the reporting consequences:

Investment expenses (5)—If you owned certain unit investment trusts or mortgage-backed securities, National Financial details the investment expenses reported on Line 5. We also incorporate those expenses into the detail interest entries for Line 1 of the 1099-INT, because we are required to report unit investment trust interest before expenses have been deducted. For this reason, the reported gross interest amounts may be higher than the amounts that you actually received. In the same manner, we also incorporate your prorated share of tax-exempt interest investment expenses in detail entries for tax-exempt interest, Line 8. Tax-exempt interest dividend expenses are not included in Investment Expenses (column 5). Instead, they are listed in the Supplemental Tax-Exempt Investment Expense section which you may find near the end of your statement if there are appropriate expenses to report.

Undistributed income from a unit investment trust (UIT)—If your UIT had undistributed 2013 income, you may find it listed as a 12/31 distribution for Line 1. We report this income, even though it is undistributed. Once distributed in the following year, this income will be reported on next year's tax statement as a positive amount (since you received a distribution) and a negative amount (since it was listed on this year's tax statement as an undistributed distribution), thereby avoiding reporting the same distribution twice.

Interest income from mortgage-backed securities—Following the IRS reporting requirements, we report income from mortgage-backed securities based on the record date rather than on any subsequent distribution date. As a result, you may find interest, distributed by your mortgage-backed security in January or February 2014, reported as 2013 income. We list such interest in the details for Line 1, dated 12/31.

For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor.

Miscellaneous Income Details

Substitute payments have been separated into two categories: those that are potentially eligible for a credit adjustment and those that are not. In early March 2014, or soon thereafter when all reclassification information is available, National Financial expects to provide eligible customers* with a credit adjustment on substitute payments received in lieu of qualified dividends during the 2013 tax year.

You should include any credit adjustments you received in 2013 for substitute payments in lieu of qualified dividends received during the 2012 tax year in your income for 2013. We now include Form 1099-MISC, Line 3, "Other Income," previously reported in a separate statement, in this consolidated Tax Reporting Statement. Line 3 includes these adjustments, only if the total of all other income reportable to you on that line reaches the reporting threshold for that form. You may, therefore, need to consult your account statements to determine the credit adjustment amount, if any, to report on your tax return. The annual credit adjustment program is not guaranteed to remain in effect indefinitely. National Financial reserves the right to amend or terminate the program.

Due to IRS reporting requirements governing widely held fixed investment trusts (WHFITs), if you owned certain royalty or HOLDRS trusts, National Financial reports various expenses, as well as adjustments that affect the estimated cost basis of your shares, in the applicable supplemental sections of your tax statement. We also include your prorated share of each of those expenses as separate items listed as royalty income (Line 2) entries. The regulations require us to report your royalties before subtracting expenses. For this reason, the total royalty amounts reported on the form may be greater than the amount that you actually received. Investment expenses may be deductible, subject to applicable limitations. For more information, see IRS Publication 550, Investment Income and Expenses (PDF), or consult your tax advisor. In addition, by March 17, additional royalty trust tax information for shareholders will be available on mybrokerageinfo.com.

*You may be eligible for the credit adjustment with respect to a substitute payment in lieu of dividends on a security on loan if (1) you are a U.S. person (including U.S. citizens and resident aliens), (2) you received the substitute payment in an account registered as an individual, joint, trust, estate, or "pass-through" entity type (partnership, LLC, LLP, etc.), (3) the account is open at the time the credit adjustment is made, and (4) you would have been eligible to treat (and report to the IRS) the dividend paid on the security on loan as a qualified dividend had the security not been on loan and had you received the dividend paid on that security rather than the substitute payment in lieu of the dividend. (You will generally satisfy this condition if the applicable security is from a domestic corporation or a qualified foreign corporation, and you would have held the security unhedged for the requisite holding period for qualified dividend treatment.) Generally, qualified dividends are those paid on shares of domestic corporations and certain eligible foreign corporations, as long as the shares are held unhedged for the requisite period of time. National Financial reserves the right to deny the credit adjustment to any customer whom National Financial determines will be ineligible to receive the tax benefit of the reduced qualified dividend tax rate and to amend the eligibility terms of the program.

Original Issue Discount Details

Securities in the Original Issue Discount Details section marked with an (A) in the "Total" column report the actual accrual information based on the purchase price of the non-real estate mortgage investment conduit (REMIC) securities. For all other securities, National Financial uses the default from IRS Publication 1212, Guide to Original Issue Discount Instruments (PDF) to estimate the accrual amount.

If you hold collateralized debt obligations (CDOs) that include real estate mortgage investment conduits (REMICs) and collateralized mortgage obligations (CMOs), you may receive a separate 1099-OID form in March to report this OID. You may need to make certain adjustments to this information. Consult your tax advisor or see IRS Publication 1212, Guide to Original Issue Discount Instruments (PDF) for more specific reporting information.

Short-Term Realized Gain/Loss

Due to new IRS cost basis reporting rules, certain aspects of National Financial's cost basis reporting have changed, beginning with tax year 2011.

Here is a summary of where you will find transaction information for various kinds of securities.

Type of Security Location of Cost Basis Information in Your Tax Statement
  • Equities
  • Mutual funds and other securities in Dividend Reinvestment Plans
  • Fixed-income securities without adjustments
  • Short sales opened in 2011-2013 and closed during 2013
1099-B Only
  • Foreign equities
  • Foreign fixed-income securities
  • Domestic fixed-income securities with cost basis adjustments
1099-B
Additional information is also provided in the Realized Gain/Loss sections of the supplemental pages
  • Options
  • Short sales, opened prior to 2011 and closed in 2013
  • Foreign currency transactions
Realized Gain/Loss sections only

The Short-Term Realized Gain/Loss section provides information that may be helpful when completing Form 1040, Schedule D.

If you purchased a security in a foreign currency, then following its sale or disposition, this section provides both the cost in that currency and the estimated United States dollar (USD) cost basis* in the "Cost Basis" column (determined based on the USD equivalent of the foreign currency cost as of the trade date of purchase). If you sold a security in a foreign currency, this section provides both the foreign currency proceeds and the USD equivalent of those foreign currency proceeds (as of the trade date of the sale) in the "Proceeds" column. See the footnotes in this section of your statement for additional information about our calculations of USD proceeds and USD cost basis in connection with these types of transactions.

Note that if you sold or otherwise disposed of a debt instrument that is denominated in a currency other than USD or that makes a payment calculated by reference to the value of a currency other than USD, certain tax rules may require you to treat as ordinary income/loss all or a portion of your realized gain/loss. Consult your tax advisor for more information regarding reporting of transactions made in a foreign currency.

Extraordinary dividends. In general, an extraordinary dividend is a dividend that exceeds 10% of your tax basis in your stock. If you received a dividend deemed as an extraordinary dividend on stock held in your account, subsequent losses realized on the sale of such stock may be treated as long-term capital losses to the extent of the extraordinary dividend, regardless of how long you held the stock. If you believe you received an extraordinary dividend, you may want to consult your tax advisor or see IRS Publication 550, Investment Income and Expenses (PDF).

*National Financial will report gross proceeds as well as certain cost basis and holding period information to you and to the IRS on your annual Form 1099-B as required or allowed by law, but such information may not reflect adjustments required for your tax reporting purposes. Taxpayers should verify such information when calculating reportable gain or loss. National Financial specifically disclaims any liability arising out of a customer's use of, or any tax position taken in reliance upon, such information. Unless otherwise specified, National Financial determines cost basis at the time of sale based on the average cost method for open-end mutual funds and based on the first-in, first-out (FIFO) method for all other securities. Consult your tax advisor for further information.

Long-Term Realized Gain/Loss

Due to IRS cost basis reporting rules, certain aspects of National Financial's cost basis reporting have changed, beginning with tax year 2011.

Here is a summary of where you will find transaction information for various kinds of securities.

Type of Security Location of Cost Basis Information in Your Tax Statement
  • Equities
  • Mutual funds and other securities in Dividend Reinvestment Plans
  • Fixed-income securities without adjustments
  • Short sales opened in 2011-2013 and closed during 2013
1099-B Only
  • Foreign equities
  • Foreign fixed-income securities
  • Domestic fixed-income securities with cost basis adjustments
1099-B
Additional information is also provided in the Realized Gain/Loss sections of the supplemental pages
  • Options
  • Short sales, opened prior to 2011 and closed in 2013
  • Foreign currency transactions
Realized Gain/Loss sections only

The Long-Term Realized Gain/Loss section provides information that may be helpful when completing Form 1040, Schedule D.

If you purchased a security in a foreign currency, then following its sale or disposition, this section provides both the cost in that currency and the estimated U.S. dollar (USD) cost basis* in the "Cost Basis" column (determined based on the USD equivalent of the foreign currency cost as of the trade date of purchase). If you sold a security in a foreign currency, this section provides both the foreign currency proceeds and the USD equivalent of those foreign currency proceeds (as of the trade date of the sale) in the "Proceeds" column. See the footnotes on this section of your statement for additional information about our calculations of USD proceeds and USD cost basis in connection with these types of transactions.

Note that if you sold or otherwise disposed of a debt instrument that is denominated in a currency other than USD or that makes a payment calculated by reference to the value of a currency other than USD, certain tax rules may require you to treat as ordinary income/loss all or a portion of your realized gain/loss.

Consult your tax advisor for more information regarding reporting of transactions made in a foreign currency.

Extraordinary dividends—In general, an extraordinary dividend is a dividend which exceeds 10% of your tax basis in your stock. If you received a dividend deemed as an extraordinary dividend on stock held in your account, subsequent losses realized on the sale of such stock may be treated as long-term capital losses to the extent of the extraordinary dividend regardless of how long you held the stock. If you believe you received an extraordinary dividend, you may want to consult with your tax advisor or see IRS Publication 550, Investment Income and Expenses (PDF).

*National Financial will report gross proceeds as well as certain cost basis and holding period information to you and to the IRS on your annual Form 1099-B as required or allowed by law, but such information may not reflect adjustments required for your tax reporting purposes. Taxpayers should verify such information when calculating reportable gain or loss. National Financial specifically disclaims any liability arising out of a customer's use of, or any tax position taken in reliance upon, such information. Unless otherwise specified, National Financial determines cost basis at the time of sale based on the average cost method for open-end mutual funds and based on the first-in, first-out (FIFO) method for all other securities. Consult your tax advisor for further information.

Currency Realized Gain/Loss

This section of your statement provides information regarding certain transactions in which a customer disposes of foreign currency, namely exchanges of foreign currency for U.S. dollars (USD), exchanges of foreign currency for a security, and exchanges of foreign currency for a different foreign currency. It provides estimated cost basis,* proceeds, and gain/loss information for the currency disposed of in any of the foregoing transactions. Under certain tax rules, gain/loss realized on these types of transactions may be treated as ordinary income/loss.

If you originally acquired the foreign currency in exchange for USD, then the estimated cost basis we provided in this section is generally that USD purchase price. If you originally acquired the foreign currency in exchange for another foreign currency, then we determined the estimated cost basis by converting the foreign currency purchase price into USD based on exchange rates on the trade date of the purchase. If you originally acquired the foreign currency in another type of taxable transaction (e.g., as proceeds from the sale of the security or as a dividend), then we determined the estimated cost basis by converting the foreign currency into USD based on exchange rates on the date of that earlier transaction.

If you sold the currency in exchange for USD, then the proceeds in this section are those USD proceeds. If you used the foreign currency to purchase a security or another foreign currency, then we determined the proceeds by converting the disposed currency into USD based on exchange rates on the trade date of that transaction. For tax reporting purposes, you may be required to determine your actual USD cost basis, proceeds, and gain/loss based on the exchange rates on the settlement dates of the applicable transactions. Gains or losses from these types of currency transactions are generally reportable as ordinary income on Form 1040.

See the footnotes in this section of your statement for additional information about our calculations of USD proceeds and USD cost basis in connection with these types of transactions.

*National Financial will report gross proceeds as well as certain cost basis and holding period information to you and to the IRS on your annual Form 1099-B as required or allowed by law, but such information may not reflect adjustments required for your tax reporting purposes. Taxpayers should verify such information when calculating reportable gain or loss. National Financial specifically disclaims any liability arising out of a customer's use of, or any tax position taken in reliance upon, such information. Unless otherwise specified, National Financial determines cost basis at the time of sale based on the average cost method for open-end mutual funds and based on the first-in, first-out (FIFO) method for all other securities. Consult your tax advisor for further information.

Municipal Original Issue Discount

Municipal Original Issue Discount information for municipal bonds may be useful for updating the cost basis of any municipal bonds you may own that were originally issued at a discount to the face value of the bond. You may need to calculate your updated cost basis information, particularly if you sell your municipal bond prior to its maturity.

Accrued Interest Paid on Purchases

Accrued interest paid when a bond purchase settles is not taxable to the buyer; instead, it is income that is taxable to the seller. Your Form 1099-INT reports the full interest payment credited to your account. You should report the full amount of interest you were paid on Form 1040, Schedule B, Interest and Dividend Income, and list the accrued interest you paid when you purchased the bond on a separate line and subtract it from your interest income subtotal.

Account Fees

This section lists the fees paid in 2013 from your account. We have listed these fees with the same descriptions that we used in your monthly/quarterly statements.

Actual Payment Shortfall

Due to the IRS reporting requirements for widely held fixed investment trusts, this section reports your prorated share of the actual payment shortfall incurred by your royalty trust and/or HOLDRs trust. Actual payment shortfall is the difference between the actual contingent payment and the projected contingent payment from contingent payment debt instruments. See your tax advisor for more information.

Addition to Basis

Due to the IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports your prorated share of addition to basis reported by your royalty trust and/or your HOLDRs trust. When the amount of principal reported exceeds the amount distributed to you, the difference is generally added to your cost basis.

Administrative Expense

Due to the IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports your prorated share of administrative expense incurred by your royalty trust and/or your HOLDRs trust. These expenses have not been deducted from the gross royalty income reported on Forms 1099-DIV and/or 1099-MISC. These expenses may be deductible, subject to applicable limitations. See your tax advisor for more information.

Generic Expenses Subject to 2% AGI Limitation

Due to the IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports your prorated share of generic expenses subject to the 2% AGI limitation incurred by your royalty trust and/or HOLDRs trust. These expenses are included in the gross royalty income reported on Forms 1099-DIV and/or 1099-MISC. These expenses may be deductible, subject to applicable limitations. See your tax advisor for more information.

Generic Expenses Not Subject to 2% AGI Limitation

Due to the IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports your prorated share of generic expenses not subject to the 2% AGI Limitation incurred by your royalty trust and/or HOLDRs trust. These expenses are included in the gross income reported on Forms 1099-DIV and/or 1099-MISC. These expenses may be deductible, subject to applicable limitations. See your tax advisor for more information.

Margin Interest Paid

Margin interest paid may be deductible as an investment expense.

Proceeds Investment Expenses

Due to IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports proceeds on investment expenses incurred by your unit investment commodity trust.

Note: Commodity trusts do not make cash distributions. We include these expenses as negative items in this section and as separate positive line items (labeled PRINCIPAL) in the proceeds amounts reported for this security on Form 1099-B. See your tax advisor for more information.

Severance Tax

Due to the IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports your prorated share of severance tax paid by your royalty trust and/or your HOLDRs trust. Severance taxes are commonly imposed by states on the extraction of natural resources to be used out of state. We include these expenses in the royalty income reported on Forms 1099-DIV and/or 1099-MISC, because we are required to report gross income without deducting expenses. These expenses may be deductible, subject to applicable limitations. See your tax advisor for more information.

Tax-Exempt Investment Expense

Due to IRS reporting requirements for widely held fixed investment trusts (WHFITs), this section reports tax-exempt interest investment expenses incurred by your unit investment trust. These expenses are not included in the investment expenses listed on Form 1099-DIV, Line 5, or on Form 1099-INT, Line 5. They are included in the tax-exempt interest amount reported on Line 8. For this reason, the reported gross tax-exempt interest amounts may be higher than the amounts that you actually received. Under certain circumstances, tax-exempt interest investment expenses may be deductible, subject to applicable limitations. See your tax advisor for more information.

Completing Form 1040, Schedule D, and Form 8949

As in prior years, National Financial sends customers, and the IRS on Form 1099-B, tax reporting on the gross proceeds from their brokerage account activities. Beginning with tax year 2011, National Financial also reports on the Form 1099-B the cost basis information for covered securities. Before tax year 2011, only account owners sent cost basis and realized gain/loss information to the IRS. This change in reporting does not mitigate the customer's responsibility to accurately complete all required tax forms, including Form 8949 and/or Form 1040, Schedule D.

De Minimis Reporting

National Financial continues to follow IRS rules governing de minimis reporting. According to these regulations, a customer's tax information need not be sent to the IRS, nor mailed to the customer, if the amount on each of the Forms 1099-DIV, 1099-INT, 1099-MISC, or 1099-OID is less than $10.00. This is true even for customers who received a tax statement last year, still hold the same account or securities, but had no reportable activity for this year.

However, if you had any reporting on Form 1099-B, in any amount, you will receive a complete tax statement and the regulatory information will be reported to the IRS. This is also the case if there was any reportable 2013 withholding in your account or if foreign tax was paid.

In cases where de minimis rules are in effect, while your tax information will not be sent to the IRS, nor mailed to you, you will be able to access your tax statement online or contact your broker or advisor. On the first page of these forms, there is a de minimis watermark and a de minimis label in the upper right corner.

State income tax withholding amounts reported on Forms 1099-DIV, 1099-MISC, and 1099-B

As required by the IRS, if you were a California resident during 2013 and we applied California backup withholding to 2013 income and proceeds in your account, you will find this information reported on the Forms 1099-DIV, 1099-MISC, and 1099-B, as applicable.

Widely Held Fixed Investment Trusts

Due to IRS reporting requirements, National Financial has enhanced tax reporting for holders of securities known as widely held fixed investment trusts (WHFITs). Generally, securities in this category include:

  • Mortgage pools (such as securities issued by agencies commonly known as Ginnie Mae, Fannie Mae, and Freddie Mac)
  • Unit investment trusts (trusts holding a specified group of stocks, bonds, options, or other assets)
  • Royalty trusts (such as trusts holding interests in properties producing gas, oil, or minerals)
  • Commodity trusts (such as certain trusts that hold precious metals)
  • HOLDRS (certain trusts that hold a specified group of stocks)

For all of these types of securities, we provide your prorated share of gross income and your prorated share of all expenses, as well as information you may need to accurately report sales and resulting realized gains and losses. For example, this means that we provide your share of all expenses incurred by the trust and your share of all income received by the trust before the trust has made any deductions for expenses. Throughout this guide, when applicable, we will describe how this information appears on your tax reporting statement.

Mortgage Pool Securities Information

We also wish to advise holders of mortgage pool securities, such as Ginnie Maes, Fannie Maes, and Freddie Macs, that we may mail you additional account tax information in a separate Mortgage Pool Statement by March 17. Due to IRS deadlines, National Financial does not receive this information in time to include it in your tax reporting statement. This additional mortgage pool information may make it necessary for us to also send you a corrected tax form.

Royalty Trust Information

Additional royalty trust tax information for shareholders, relayed to us by the trust, will be available by March 17 on mybrokerageinfo.com. You may find this information useful as you complete your tax returns.

Transferred Accounts

If your account was transferred to National Financial from another brokerage or clearing firm during 2013, your National Financial tax statement will only include activity from the time you started conducting business with us. Your former brokerage or clearing firm should provide Form 1099 and any other applicable tax reporting forms for 2013 activity that occurred prior to the transfer.

Tax Statement FAQs

Please consult your tax advisor about using this information.

Tax Statement

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The IRS began to require cost basis reporting for certain securities (covered securities) on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, beginning with tax year 2011. As a result of these new regulations, brokerage firms (including National Financial) are required to report most cost basis information for sales, redemptions, exchanges, etc., on Form 1099-B for securities that the IRS deems as covered by these regulations. Generally, the regulations define covered securities as:

2011 – Stock in a corporation purchased on or after January 1, 2011 (not including stocks eligible for average basis)

2012 – Shares of registered investment companies, including open-end mutual funds, and stocks acquired in dividend reinvestment plans (DRIPs), purchased on or after January 1, 2012

2014 – Less complex debt securities that have a single fixed payment schedule as well as a maturity date, and were acquired on or after January 1, 2014. Equity options and Section 1256 options, as defined by the IRS, also qualify as covered securities as of the same acquisition date.

2015 – Transfer statement reporting (for example, when you move your account from one firm to another) begins for all equity options and less complex debt securities.

2016 – Complex debt instruments (acquired on or after January 1, 2016), including those with more than one stated rate of interest, convertible debt, stripped bonds or stripped coupons, non-dollar-denominated debt, tax credit bonds, debt with a payment in kind (PIK) feature, foreign debt issued by a non-U.S. issuer, contingent payment debt, and inflation-indexed debt.

2017 – Transfer statement reporting by brokers begins for all complex debt issues that are covered as of January 1, 2016.

Noncovered securities
Noncovered securities include the types of securities, described above, whose acquisition and/or disposition dates are older than the applicable dates for covered securities. When the information is available in our records, Fidelity also provides cost basis information for sales, redemptions, and exchanges of noncovered securities in separate sections of Form 1099-B. However, we do not report this cost basis information to the IRS.

The following securities are classified as noncovered:

  • Short-term debt (maturity of less than 366 days)
  • Real estate mortgage investment conduits (REMICs)
  • Securities from the Federal National Mortgage Association and the Government National Mortgage Association (Freddy Macs and Ginny Maes)

These reporting changes do not mitigate the customer's responsibility to accurately complete all required tax forms, including Form 1040, Schedule D.

Beginning with tax year 2013, the American Taxpayer Relief Act of 2012 permanently extends the 0% and 15% tax rates for qualified dividends for single filers with taxable incomes below $400,000 and joint filers with taxable incomes below $450,000. The top rate will permanently increase to 20% for filers with taxable incomes above these thresholds. Qualified dividends are generally dividends from domestic corporations and certain qualified foreign corporations for which the requisite holding period(s), described below, are satisfied.

In order for the qualified dividends reported to you in Line 1b of Form 1099-DIV to be taxed at one of the lower federal long-term capital gain tax rates, you are required to have held the dividend-paying security unhedged for at least 61 days out of the 121-day period that begins 60 days before the ex-dividend date. If you did not hold the security unhedged for the requisite period, the dividends should be taxable at ordinary income tax rates.

Mutual fund dividends attributable to (i) interest, (ii) dividends on stock issued by certain foreign companies, and (iii) dividends on stock not held by the mutual fund for the requisite holding period will not qualify for long-term capital gain tax rates at which qualified dividends are potentially taxed. All or a portion of mutual fund dividends attributable to short-term capital gains also may not qualify for long-term capital gain tax rates at which qualified dividends are potentially taxed. These dividends will likely comprise a portion of the total ordinary dividends reported in Line 1a of Form 1099-DIV. Mutual fund dividends that are reported as qualified dividends on Line 1b of Form 1099-DIV, but for which a shareholder does not satisfy the requisite holding period for the dividend-paying mutual fund (see previous question), also will not qualify for the lower long-term capital gains tax rates.

Substitute payments in lieu of dividends may be generated where, for example, a security has been lent to a third party (such as a broker) over a dividend record date. If an investor has a margin account debit balance, securities in the account are often eligible to be lent to a broker. If the shares are lent over a record date, the investor should receive a substitute payment equivalent in amount to the dividend but taxable at ordinary income tax rates. Prior to the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), substitute payments and actual dividends were both taxed at the federal level as ordinary income. JGTRRA introduced lower federal rates for qualified dividend income; however, substitute payments are not taxed as qualified dividend income and are instead still taxed at ordinary income rates. Substitute payments in lieu of dividends are reported on Line 8 of Form 1099-MISC.

Beginning with tax year 2013, National Financial reports "Other Income," Form 1099-MISC, line 3 (reported separately in prior years) in your consolidated Tax Reporting Statement. National Financial is required to report Other Income to you and the IRS if, during a tax year, you received other miscellaneous income, including, among other items, credit adjustments for substitute payments received in lieu of qualified dividends, and/or certain other credits, adjustments, entertainment, gifts, gratuities, incentives, benefits, prizes, awards, or other miscellaneous income totaling at least $600. We determine your total other miscellaneous income by adding the other miscellaneous income amounts in all your accounts (under the same Taxpayer ID) for which National Financial Services LLC (NFS) is the payer.

There are many types of "Other Income," and different rules may apply depending on the type of income you receive. The amount on Form 1099-MISC, line 3, is often reported on the "Other Income" line of Form 1040, along with a description that identifies it. See IRS Publication 525, Taxable and Nontaxable Income, the instructions for your tax return, and/or consult your tax advisor for information on how items reported by NFS on Form 1099-MISC, line 3, may need to be reported on tax returns and whether any offsetting deductions can be claimed.

Only income items associated with a particular account are reported on the Form 1099-MISC issued in conjunction with that account. NFS must first aggregate items of other income received in conjunction with all accounts using the same Taxpayer ID for which it reports tax information to determine if reporting on Form 1099-MISC, line 3, "Other Income," is required. If, based on this aggregated total, reporting is required; NFS issues a separate form for each of the accounts with which individual items of income are associated, even though the amount of "Other Income" reported in conjunction with that account may be under $600.

National Financial must adhere to IRS requirements when reporting on Forms 1099-DIV, 1099-INT, and 1099-B, which may result in differences between what is on your monthly and quarterly statements and what is reported to the IRS. For example, transactions on Form 1099-B must be reported based on the trade date even though your statements reflect sales based on the settlement date. Additionally, unlike dividends from individual securities, which are typically taxed in the year the dividends are paid, mutual fund distributions declared as payable to shareholders of record in October, November, or December and paid prior to February 1 of the following year are taxable to shareholders based on the record date, not when paid. For example, mutual fund distributions with a record date in December 2013, and paid in January 2014, are reported and taxed as 2013 dividend distributions.

Dividends and interest earned on foreign securities may be subject to withholding tax by the country from which they were paid. If you held securities that paid dividends or interest that was subject to foreign tax, Form 1099-DIV and Form 1099-INT report the gross amount of the dividends or interest (as applicable) and the amount of tax withheld at the source. You must report the gross amount of the dividend or interest on your tax return; however, you may also be able to claim a credit or deduction for the amount of tax paid to foreign countries.

If that mutual fund holds more than 50% of its assets in foreign securities at year-end, it may elect to permit shareholders to claim a credit or deduction on their federal income tax returns for their pro rata portion of the foreign taxes paid. If the election is made, the amount of foreign tax that you may be able to claim as a credit or deduction will be reported on Line 6 of your Form 1099-DIV and that amount will also be included in the dividend amount reported in Line 1a (and if applicable, 1b) of your Form 1099-DIV (i.e., the dividend amount will be gross of the foreign taxes). Under these circumstances, you must report the gross dividend amount on your tax return; however, you may be able to deduct or receive credit for the foreign taxes. If the mutual fund is not able to, or chooses not to, elect to permit shareholders to claim a credit or deduction for their portion of the foreign taxes paid, those foreign taxes will not be reported on Line 6 of your Form 1099-DIV and will not be included in the dividend amount reported in Line 1a (or Line 1b) of your Form 1099-DIV (i.e., the dividend amount will be net of the foreign taxes). Under those circumstances, you may report that net dividend amount on your tax return but cannot otherwise deduct or receive credit for the foreign tax.

This section reports in U.S. dollars (USD) the estimated gain/loss on the foreign currency position that you disposed of in the security purchase. When you acquired that foreign currency position, a USD cost basis was established in that position (as described in the Currency Realized Gain/Loss section and in the footnotes on that section of your statement). Based on changes in exchange rates between that time and the time of the security purchase you experienced a gain or loss in the USD value of that foreign currency position which you realized when you used the foreign currency position to purchase the security.

National Financial is required by the IRS to report gross dividends and gross interest from unit investment trusts (before expenses have been deducted). These expenses are included in the dividend and interest amounts reported on Forms 1099-DIV and 1099-INT and in their associated supplemental detail information sections. The total corresponding expenses are reported on Line 5 of Form 1099-DIV or 1099-INT. Those expenses are itemized, by security, in the detail sections. Expenses, included in tax-exempt interest dividends on Form 1099-DIV or in tax-exempt interest on Form 1099-INT, if applicable, are listed separately in the supplementary Tax-Exempt Interest Investment Expense section, near the end of your tax statement. In addition, your reported gross dividends and gross interest could also include any foreign tax paid by the issuer of your security.

Due to IRS reporting requirements governing widely held fixed investment trusts (WHFITs), if you owned a unit investment trust (UIT), a security derived from a mortgage pool, or a real estate mortgage investment conduit (REMIC), we report your prorated share of proceeds from the sale of a security held by the trust or conduit as return of principal. We report your share of the gross proceeds, prior to making any deductions for expenses, whether or not you actually received a payment. For example, your UIT may have sold a security in order to cover redemption requests or other expenses. Since all gross income and expenses must be prorated among all unit holders, your share of such proceeds is reported, even if you did not receive any distribution. We are required to report gross return of principal, including expenses, as of the transaction date for the trust—this may often be considerably before the trust made any resulting distributions to individual trust holders.

Please note that you must generally report on Form 1040, Schedule D, all transactions reported on Form 1099-B, including return of principal. Return of principal transactions may also result in realized gain or loss. Return of principal generally reduces your basis in the affected security.

The IRS requires you to use the trade date to determine your holding period. The "Date of Sale" on Form 1099-B is the trade date for each sale. Your monthly statement reports settlement date, which is the date by which payment is due.

National Financial is required to report these distributions to you and to the IRS. Nondividend distributions generally reduce your basis in your shares (but not below zero). This becomes important when you sell your shares and need to calculate your gain or loss. However, a nondividend distribution is taxable as (and must be reported as) a capital gain to the extent that it exceeds your adjusted basis in the shares.

If you held a limited partnership in 2013, the partnership (not National Financial) will provide a Schedule K-1 to you. If you held a CMO in 2013, you will receive its income information in a separate Form 1099-OID from National Financial in mid-March.

Starting in 2011, the IRS requires us to report short sales in a new way. Any short sale entered into in 2011 or later will not be reported on your 1099-B until you have closed the short sale. In most cases, your 1099-B will show the date that you closed the short sale, the acquisition date of the security used to close the short sale, and the adjusted basis of the security used to close the short sale. If you closed a short sale in 2013 that was opened prior to 2011, this transaction will not appear on your 2013 1099-B, but it will appear in the supplemental Long-Term Realized Gain/Loss section. All gains and losses resulting from closing short sale positions should be reported on Form 1040, Schedule D for the year in which the short position is closed. For more information on short sales, see IRS Publication 550, Investment Income and Expenses (PDF) or consult your tax advisor.

Additional Information

National Financial's Estimated Mailing Dates for Tax Forms

National Financial makes tax forms available by mail or online as soon as we are able to provide accurate and complete information. In cases where we anticipate the receipt of adjusted data, we generally delay sending out the form until we can incorporate the information. In this way, we strive to ensure that only the most accurate form is sent, thus helping customers avoid having to amend a return. If you receive your form by mail, please allow an additional five business days for mail delivery.

Tax form

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Type of account Brokerage retirement accounts

Estimated mailing date January 21, 2014

Brokerage accounts which hold mutual funds or equities. If we anticipate adjustments to the tax lot data, your mailing date may be later.

Estimated mailing date January 27, 2014

Any remaining Brokerage accounts which hold mutual funds, equities, fixed income securities, or real estate investment trusts (REITs). If we anticipate adjustments to the tax lot data, your mailing date may be later.

Estimated mailing date February 11, 2014

All remaining brokerage accounts (except as noted below) whose holdings may include mutual funds, foreign and domestic equities, fixed income securities, real estate investment trusts, unit investment trusts (UITs), original issue discounts (OIDs), and widely held fixed investment trusts

Estimated mailing date February 18, 2014

Brokerage accounts which may hold securities incorporating late adjustments

Estimated mailing date February 28, 2014*

Special UIT Tax Statement Mailing for brokerage accounts which hold unit investment trusts

Estimated mailing date March 14, 2014*

*NFS has received a mailing deadline extension from the IRS. Mailing some original forms by this date will mitigate sending a similar number of corrected forms. We apologize for any inconvenience that you might experience.

The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. National Financial does not provide legal or tax advice. National Financial cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. National Financial makes no warranties with regard to such information or results obtained by its use. National Financial disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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