Tax Reporting Statement
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.
As part of the 2014 Cost Basis Legislation (CBL) changes, there are two new fields on the Form 1099-INT: Line 10, Market Discount, and Line 11, Bond Premium. For debt issued at par, market discount is the difference between the instrument's stated redemption price and the purchase price. There is a taxpayer election that allows you to choose whether you want to recognize the discount at disposition (sale or redemption), or alternatively to calculate accretion daily. The default setting is to recognize the discount at disposition. If you elect to calculate accretion daily, the market discount would appear on Form 1099-INT in line 10. Bond Premium is the amount paid above a debt instrument's par value. There is a taxpayer election that allows you to choose whether you want to amortize the premium for corporate bonds. The default setting is to amortize, for which the amortized amount would appear on Form 1099-INT, line 11.
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, Connecticut, Minnesota, or New York state tax authorities.
Line 12 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.
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. Beginning with 2013 we reported Line 3, Other Income, on this consolidated Tax Reporting Statement. 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 16, 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. Beginning January 1, 2014, gross proceeds will also be adjusted for option premiums from option contracts purchased and subsequently closed after that date.
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 2014. Additionally, the proceeds of all covered option contracts purchased after 12/31/2013 will be listed on Form 1099-B. 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).
2014 update on cost basis reporting to the IRS
As part of the 2014 Cost Basis Legislation (CBL) changes, the IRS provided further details on cost basis reporting for fixed-income securities and options. As a result, equity and covered index options (also known as Section 1256 options contracts) are now required to be reported on Form 199-B. For these option contracts, we provide a summary of activity, instead of a detailed list of transactions, in a separate section on Form 1099-B.
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 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*
Because less complex debt is now eligible to be considered "covered," market discount (when recognized at disposition) is now reported on Form 1099-B. This information is displayed in columns 1f, Code, and 1g, Adjustments. If your transaction has either market discount or wash sale amounts to report, then column 1f will be populated with either a D = Market Discount or W = Wash Sale. The amount of the market discount or wash sale will be shown in column 1g, Adjustment.
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 six different sections: short-term covered, short-term noncovered, long-term covered, long-term noncovered, a section for transactions whose basis is not reported to the IRS and whose term is unknown, and a new section called Section 1256 Option Contracts.
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 of Property, Stock or Other Symbol (1a)
- Date Sold or Disposed (1c)
- Proceeds (1d)
- Federal Income Tax Withheld (4)
Note that the numbers following each category are equivalent to the ones on the stand-alone IRS Form 1099-B.
The cost basis information that we provide to the IRS, when applicable, includes
- Date Acquired (1b)
- The holding period of the security that you sold (short-term, long-term, or unknown) (2)
- Cost or Other Basis (1e)
- Wash Sale or Market Discount (1f and 1g)
- Basis is reported to the IRS (3 or 5)
The supplemental realized gain/loss sections in your 2014 tax statement continue to provide additional cost basis information for complex debt, for noncovered option contracts, 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
- Mutual funds and other securities in dividend reinvestment plans
- Less complex debt
- Short sales opened in 2011-2014 and closed during 2014
- Covered option contracts
- Foreign equities
- Foreign fixed-income securities
- Complex debt
Additional information is also provided in the Realized Gain/Loss sections of the supplemental pages
- Noncovered option contracts
- Short sales, opened prior to 2011
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 2014 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 2014 Form 1099-B, in January or February 2015. 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.
As part of the 2014 Cost Basis Legislation (CBL) changes, there are two new fields on Form 1099-OID: Market Discount (5), and Acquisition Premium (6). For OID bonds, market discount is the difference between the adjusted issue price and the purchase price. The default setting is to recognize this discount at the time of disposition, and then the discount would be reported on Form 1099-B. If you elect to have current inclusion, or to calculate accretion daily, then the market discount would be reported on Form 1099-OID. Acquisition premium is the amount paid above a debt instrument's adjusted issue price for taxable bonds. The amortization of this premium is calculated daily, and reported on Form 1099-OID, unless you elect not to amortize.
Additionally, Form 1099-OID features supplemental OID information that was previously reported on a separate section of this tax package. This information includes Begin Date, Days Held, OID Rate, and Face Amount, which can help you understand how your OID amount was calculated.