TAX HANDBOOK. A Comprehensive Handbook for Financial Organizations

Transcription

1 A Comprehensive Handbook for Financial Organizations 2007 TAX HANDBOOK Pershing LLC, its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. This handbook is not intended to provide tax advisory services. Clients should contact their tax professional to discuss the appropriate federal, foreign, state, and local tax treatment of transactions. This handbook, as well as the tax information statement, is intended solely to assist in accumulating data to prepare income tax returns and should not be construed as tax advice. All amounts and transactions displayed in this handbook are for illustration only, and do not represent actual transactions. Accordingly, no guidance should be inferred as to any specific transaction from the illustrations in this handbook.

2 TABLE OF CONTENTS What s New for 2007 for Nonretirement Products General Information What s New in the 2007 Sample Tax Information Statement Sample of the Tax Information Statement Correcting Tax Information Statements Request for Tax Information Statements Form Tax Reporting Calendar IRS Form 1099-B Proceeds from Broker and Barter Exchange Transactions IRS Form 1099-INT Interest Income IRS Form 1099-DIV Dividends and Distributions IRS Form 1099-OID Original Issue Discount Revised Tax Information Statements Reclassified Income IRS Form 1099-MISC Miscellaneous Income Transactions Pershing Does Not Report to the IRS Minimum Amounts to Be Reported and Due Dates Accounts Exempt from Tax Reporting Federal Tax Withholding (Backup Withholding) Collateralized Debt Obligations (CDOs), Collateralized Mortgage Obligations (CMOs), Real Estate Mortgage Investment Conduits (REMICs), Financial Asset Securitization Investment Trusts (FASITs), and Widely Held Mortgage Trusts (WHMTs) State Information Returns IRS Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding IRS Form 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains TXAS-Tax Reporting System/TEFRA RETIREMENT PRODUCT TAX INFORMATION What s New for 2007 for Retirement Products General Information Tax Reporting Calendar Form 1099-R Copy C With Instructions Form 1099-R Copy B and Copy Guide to Form 1099-R Distribution Codes Form 1099-Q Correcting Tax Information for Form 1099-R and Form 1099-Q R Tax Correction Request Form Q Tax Correction Request Form Form Form 5498-ESA Correcting Tax Information for Form 5498 and Form 5498-ESA Tax Correction Request Form ESA Tax Correction Request Form Form 1099-R Name/TIN Mismatch Notices Foreign Distribution Tax Treatment Foreign Distribution Tax Treatment Grids IRS Publication 515 and Form 1042-S IRS Form 990-T Exempt Organization Business Income Tax Return Frequently Asked Questions: Required Minimum Distributions (RMDs) and IRS Forms 1099-R, 1099-Q, 5498, and 5498-ESA i

3 WHAT S NEW FOR 2007 FOR NONRETIREMENT PRODUCTS TAX INFORMATION SYSTEM (TXAS) ENHANCEMENTS You can now browse exempt account activity for accounts coded ERISA Code A that are not foreign or cash on delivery (COD) accounts, as well as 1099 information for foreign accounts. You will also be able to request courtesy statements as long as the 1099 information is available on TXAS. These requests are processed each week on Monday nights. All retail courtesy 1099 statement requests must be received by May 31, Requests received after May 31, 2008 will not be processed. CD-ROM PASSWORD Starting with our January 2008 month-end reporting, Pershing will implement an annual password change for all SelectView CD-ROMs that we send to our customers. This change will: Retain the eight-character password format that Pershing introduced in April 2007 Retain the fourteen-character password format that Pershing Advisor Solutions introduced in April 2007 Impact brokerage account statements, client trade confirmations, omnibus statements, tax documents, and Portfolio Evaluation Service quarterly CDs B notice reports are now available in Items For Attention An explanatory letter containing your 2008 password will be sent to you by registered U.S. mail in mid-december. SelectView CD-ROMs mailed to you during January and February 2008 will feature a splash screen reminder of this password change. The reminder will display when you first attempt to open the CD-ROM. GENERAL INFORMATION PAYER Pershing LLC is the payer of income reported on Internal Revenue Service (IRS) Forms 1099-B, 1099-INT, 1099-DIV, 1099-OID, and 1099-MISC. PAYER S TAXPAYER IDENTIFICATION NUMBER (TIN) The TIN, also called the Federal Identification Number, for Pershing is NEW CLIENTS Tax information statements include activity for 2007 or since the date your financial organization or your clients commenced doing business with Pershing. MONEY MARKET FUNDS Tax information statements include income earned on money market funds for which Pershing LLC is the payer of income. When income from money market funds is not reported on the tax information statements, the fund company issues a separate IRS Form TAX INFORMATION STATEMENT SUBSTITUTIONS Tax information statements are substitutes for the following IRS forms: IRS Information Return IRS Form Name 1099-B Proceeds from Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-DIV Dividends and Distributions 1099-OID Original Issue Discount 1099-MISC Miscellaneous Income TRANSACTIONS PERSHING DOES NOT REPORT TO THE IRS Tax information statements also include the following transactions which we do not report to the IRS: Municipal Original Issue Discount Partnership Cash Distributions Trust Distributions Return of Principal Distributions Equity Options Transactions Securities Purchased Accrued Interest Purchased Margin Interest Expense COLLATERALIZED DEBT OBLIGATIONS (CDOs), COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs), REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICs), FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS (FASITs), AND WIDELY HELD MORTGAGE TRUSTS (WHMTs) Interest earned on certain CDOs, CMOs, REMICs, FASITs, and WHMTs is not included on the original IRS Form 1099-INT mailed in February Tax information on these securities is not available until after the mailing deadline. We are required to provide this information to your clients by March 15, Accordingly, taxpayers may choose not to file their tax return until they receive a revised tax information statement. SERVICE CENTER All 1099 correction requests (current and prior year) should be submitted via Service Center on the NetExchange platform. Please note that correction requests can only be processed for the current year plus two years ( ). If the account status is changed (i.e., exempt to nonexempt, foreign to U.S. living abroad, etc.), a 1099 correction request must be submitted via Service Center. To insure that the proper reporting is done, the Tax Reporting Department must be made aware of these account updates. 1

4 GENERAL INFORMATION Current year (2007) retail 1099 corrections due to Social Security Number (SSN) or Tax Identification Number (TIN) updates are processed systematically until March 31, After March 31, 2008, you can request a duplicate 1099 on TXAS after you change the SSN/TIN, and the statement will be printed in the next revision with the corrected SSN/TIN. Please note: Prior year SSN and TIN updates must always be submitted via Service Center as they will not occur systematically. The Tax and Year-End Statement, which combines the year-end statement with the 1099 tax statement, is a joint effort between the Tax Reporting Department and the Portfolio Evaluation area. For additional information, see Correcting Tax Information Statements on page 19. All requests for current year federal tax reversals must be submitted via a service center request. REPORTS AVAILABLE ON REPORT CENTER IRS B-Notice Reports (TXA997A1 and TXA997A2) Reasonable Cause Reports (TXA822R7 and TXA822R8) 1099 Revision Reports (BMO521A0 and BMO521A1) 1042-S Statement Reports (TXA801R0) T-Bill Solicitation Reports (TXA956A1, TXA956A2, and TXA956A6) E-DOCUMENT SUITE TM Original tax information statements, duplicate copies, requested courtesy tax information statements, Form 480.6A, 480.6B, and all revised tax information statements may be accessed online via e-document Suite. TAX INFORMATION SYSTEM (TXAS) You can research your clients tax-related inquiries in TXAS, which allows you to: Browse accounts updated on the previous day by account number, office number, investment professional number, and date of update Review tax information according to the update type Browse Puerto Rico activity on Form 480.6A and 480.6B reporting to the Commonwealth of Puerto Rico Browse exempt accounts coded with ERISA Code A Browse 1099 information for foreign accounts MULTIPLE TAX INFORMATION STATEMENTS Your clients who have multiple accounts with Pershing will receive separate tax information statements for each account. TAX INFORMATION STATEMENTS VERSUS BROKERAGE ACCOUNT STATEMENTS Brokerage account statements provide taxpayers with a cash basis summary of their accounts for the 2007 calendar year. Tax information statements reflect information on a tax basis. Although there may be differences between the two documents, tax information statements are the authoritative document for tax reporting purposes. The statements may differ in any of the following situations: Tax classifications for income paid by mutual funds, real estate investment trusts (REITs), and unit investment trusts (UITs) are reported on the tax information statement based on information provided by the administrators of these companies after year end. Their year-end tax classifications often differ from the classifications reported on the monthly brokerage account statements. Dividends declared and made payable by mutual funds and REITs in October, November, or December 2007 are reported on the 2007 tax information statement, even when the dividends are actually paid in January These dividends are referred to as spillover dividends and will not be reported again on the 2008 tax information statement. Tax information statements display trade activity based on trade date. Monthly brokerage account statements display trade activity on a settlement date basis. Interest income earned on REMICs is not included on tax information statements issued in February This information is due to your clients by March 15, Income from REMICs is reported on an accrual basis when earned (not when paid). Consequently, there may be differences between interest income credited on brokerage account statements and income reported on the tax information statement. Our tax reporting system uses Pershing s Security Master file to ensure the proper classification of income. External vendors (for instance, Automatic Data Processing, Inc. [ADP], Bloomberg Financial Services, Ernst & Young, Interactive Data Corporation, J.J. Kenny Information Services, Lipper Analytical Services, Standard & Poor s, and WSC Investment Services) are used to verify classification of income. TAX INFORMATION STATEMENT CD-ROMS All firms will receive a CD-ROM that contains the tax information statements for all clients and offers a variety of sort, retrieval, and print options. This CD-ROM will represent the filing to the IRS and will be available after June Refer to the Request for Tax Information Statements Form on page 21 for additional information on paper printouts and CD-ROM options. ADDITIONAL INFORMATION The tax guide will be available electronically via and through e-document Suite on the NetExchange platforms. WHO TO CONTACT Our Tax Reporting Help Desk provides you with a centralized source of information and assistance for tax reporting issues. The toll-free number is (800) for calls originating within the United States; or you can also reach the Help Desk at (201) The Tax Reporting Help Desk is not authorized to offer tax advice. 2

5 WHAT S NEW IN THE 2007 SAMPLE TAX INFORMATION STATEMENT FOR YOUR INFORMATION (FROM SAMPLE STATEMENT) Making sense of your finances just got simpler thanks to this consolidated tax and year-end statement. The following sources of must-have, year-end information are now at your fingertips: Tax Statement (IRS Form 1099) containing a detailed summary of your reportable and other nonreportable brokerage account transactions to assist with tax preparation Asset Management Account Activity listing checking, debit card, and electronic transactions posted to your asset management account < Available for Gold and Platinum asset management accounts only > Portfolio Evaluation Service (PES ) featuring a schedule of realized gains and losses for your investments < Available for PES accounts only > We hope you will find the information provided by these tools helpful while preparing for the current tax-filing season. This section is meant as a general guide and is provided for informational purposes only. The Schedule of Realized Gains and Losses is not reported to the IRS. This Schedule may not reflect all cost basis adjustments necessary for tax reporting purposes; for example, it does not reflect disallowed losses from wash sale events and differences due to reclassification of income. The Schedule of Realized Gains and Losses section on this statement and the monthly client brokerage statement will differ when adjustments are made after the closing date of the transaction. When you report your cost basis on your tax return, it should be verified with your own records. In particular, there may be other adjustments which you need to make and you should consult with your tax advisor in order to properly report your gain or loss for tax purposes. Cost basis on fixed income securities is adjusted by several factors including: amortization, accretion, or principal paydowns. Original cost basis of these investments is provided for your convenience. The cost basis of this security has been provided to us by you or your financial organization and we make no representation as to the accuracy of such cost basis. Realized gains and losses are not reported for this closing transaction because the cost basis or proceeds is not available. As a result, totals will not reflect information for this security. Realized loss for this security is net of disallowance due to a wash sale to the extent such wash sales are reflected in our records. There may be differences between the Schedule of Realized Gains and Losses and 1099 reporting. Below are some of the reasons for these differences: Account Number Changes If your account number changed during the year, the Schedule of Realized Gains and Losses may have been transferred from the original account to the new account. The new account will provide you with the complete Schedule of Realized Gains and Losses. However, you will receive a complete Form 1099 for each account opened during the year. Corporate Actions For corporate actions, especially cash and stock mergers, the Schedule of Realized Gains and Losses may report the economic gain or loss resulting from the transaction, including the value of any stock or securities received. Thus, the Schedule of Realized Gains and Losses may report no capital gain, a capital gain equal to the difference between the original cost basis versus the fair market value of the new security, or a capital gain equal to the cash received, depending on the terms of the corporate action. In all events, however, the Form 1099 will only report the cash portion of the corporate action. Cost Basis Service Enrollment The Schedule of Realized Gains and Losses will only be displayed for closing transactions during the period the account was enrolled in the cost basis service. However, proceeds will be reported on the Form1099 for the full year. Cost Basis Service Reenrollment The Schedule of Realized Gains and Losses provides you with the activity after your account was reactivated in the cost basis service. However, proceeds will be reported on the Form 1099 for the full year. Fixed Income Maturities and redemptions for short-term instruments (maturities of less than one year) are included in the Schedule of Realized Gains and Losses. However, this income is reported to the IRS on Form 1099-INT. Mortgage-Backed Securities Each principal paydown is included in the Schedule of Realized Gains and Losses. However, proceeds are reported to the IRS on Form 1099-B only upon the sale or final redemption of the security. Options (Assignment) For the Schedule of Realized Gains and Losses, the underlying security proceeds are adjusted by the premium paid or received from the options contract. However, if the assignment of the options constitutes a sale of the underlying securities, the proceeds of the sale are reported to the IRS on Form 1099-B, without taking the premium into account. Options (Closing Contracts) The Schedule of Realized Gains and Losses will include options transactions. However, options transactions are generally not reported to the IRS and may not appear on the Form Short Sales Short sales are reported on the Schedule of Realized Gains and Losses in the year those sales are covered. However, short sales are reported to the IRS on Form 1099-B in the year they are sold. The tax rules applicable to the reporting of the transactions reported on the Schedule of Realized Gains and Loss are complex. You should consult your tax advisor for the appropriate tax treatment of your transactions and the manner in which they should be reported on your tax returns. 3

6 SAMPLE OF THE TAX INFORMATION STATEMENT INSERTS FROM SAMPLE STATEMENT For Your Information SAMPLE STATEMENT Making sense of your finances just got simpler thanks to this consolidated tax and year-end statement. The following sources of must-have, year-end information are now at your fingertips: Tax Statement (IRS Form 1099) containing a detailed summary of your reportable and other nonreportable brokerage account transactions to assist with tax preparation Asset Management Account Activity listing checking, debit card, and electronic transactions posted to your asset management account < Available for Gold and Platinum asset management accounts only > Portfolio Evaluation Service (PES ) featuring a schedule of realized gains and losses for your investments < Available for PES accounts only > We hope you will find the information provided by these tools helpful while preparing for the current tax-filing season. This section is meant as a general guide and is provided for informational purposes only. The Schedule of Realized Gains and Losses is not reported to the IRS. This Schedule may not reflect all cost basis adjustments necessary for tax reporting purposes; for example, it does not reflect disallowed losses from wash sale events and differences due to reclassification of income. The Schedule of Realized Gains and Losses section on this statement and the monthly client brokerage statement will differ when adjustments are made after the closing date of the transaction. When you report your cost basis on your tax return, it should be verified with your own records. In particular, there may be other adjustments which you need to make and you should consult with your tax advisor in order to properly report your gain or loss for tax purposes. Cost basis on fixed income securities is adjusted by several factors including: amortization, accretion, or principal paydowns. Original cost basis of these investments is provided for your convenience. The cost basis of this security has been provided to us by you or your financial organization and we make no representation as to the accuracy of such cost basis. Realized gains and losses are not reported for this closing transaction because the cost basis or proceeds is not available. As a result, totals will not reflect information for this security. Realized loss for this security is net of disallowance due to a wash sale to the extent such wash sales are reflected in our records. There may be differences between the Schedule of Realized Gains and Losses and 1099 reporting. Below are some of the reasons for these differences: SAMPLE STATEMENT Account Number Changes If your account number changed during the year, the Schedule of Realized Gains and Losses may have been transferred from the original account to the new account. The new account will provide you with the complete Schedule of Realized Gains and Losses. However, you will receive a complete 1099 for each account open during the year. Corporate Actions For corporate actions, especially cash and stock mergers, the Schedule of Realized Gains and Losses may report the economic gain or loss resulting from the transaction, including the value of any stock or securities received. Thus, the Schedule of Realized Gains and Losses may report no capital gain, a capital gain equal to the difference between the original cost basis versus the fair market value of the new security, or a capital gain equal to the cash received, depending on the terms of the corporate action. In all events, however, the 1099 will only report the cash portion of the corporate action. Cost Basis Service Enrollment The Schedule of Realized Gains and Losses will only be displayed for closing transactions during the period the account was enrolled in the cost basis service. However, proceeds will be reported on the 1099 for the full year. Cost Basis Service Reenrollment The Schedule of Realized Gains and Losses provides you with the activity after your account was reactivated in the cost basis service. However, proceeds will be reported on the 1099 for the full year. Fixed Income Maturities and redemptions for short-term instruments (maturities of less than one year) are included in the Schedule of Realized Gains and Losses. However, this income is reported to the IRS on Form 1099-INT. Mortgage-Backed Securities Each principal paydown is included in the Schedule of Realized Gains and Losses. However, proceeds are reported to the IRS on Form 1099-B only upon the sale or final redemption of the security. Options (Assignment) For the Schedule of Realized Gains and Losses, the underlying security proceeds are adjusted by the premium paid or received from the options contract. However, if the assignment of the options constitutes a sale of the underlying securities, the proceeds of the sale are reported to the IRS on Form 1099-B, without taking the premium into account. Options (Closing Contracts) The Schedule of Realized Gains and Losses will include options transactions. However, options transactions are generally not reported to the IRS and may not appear on the Short Sales Short sales are reported on the Schedule of Realized Gains and Losses in the year those sales are covered. However, short sales are reported to the IRS on Form 1099-B in the year they are sold. The tax rules applicable to the reporting of the transactions reported on the Schedule of Realized Gains and Loss are complex. You should consult your tax advisor for the appropriate tax treatment of your transactions and the manner in which they should be reported on your tax returns. 4

7 SAMPLE OF THE TAX INFORMATION STATEMENT Summary Section The top section of the tax information statement s first page provides the account profile information illustrated below. On all subsequent pages of the tax information statement, only the account number, the recipient s identification number, and the first two lines of the account registration appear. The account profile information includes the following: 1. Your client s account number and the recipient s identification number 2. Your client s name and address 3. The investment professional s name, address, and telephone number 4. The payer s name and Federal Identification Number Appearing below the account profile information on the first page are the following four summary sections: 5. Summary of Gross Proceeds and Regulated Futures Contracts DIV Dividends and Distributions INT Interest Income 8. Summary of Original Issue Discount If an account has only one reportable transaction in one of the summary sections, all remaining sections will appear with zeros indicating no activity. If an account has no reportable information, this summary page is not printed. The following are notices that may appear on the tax information statement: 9. An IRS message indicating comparison of information to the client s tax return 10. A notice if the client held any collateralized debt securities (CDOs, CMOs, REMICs, FASITs, and WHMTs) The page number relative to all pages of the tax information statement 1 Income from these securities is reported by March 15, Tel: NOTICE: This tax statement is incomplete as it relates to your CDO, CMO, REMIC, FASIT, and WHMT.You should not file your tax return until you receive a revised statement from us with the applicable information. (See the message at the end of this statement). 5 7 Summary of Gross Proceeds and Regulated Futures Contracts Amount Gross Proceeds (Less Commissions and Fees) , * Federal Income Tax Withheld Gross Proceeds Regulated Futures Contracts: Profit or (Loss) Realized in Unrealized Profit or (Loss) on Open Contracts 12/31/ Unrealized Profit or (Loss) on Open Contracts 12/31/ , Aggregate Profit or (Loss) , Federal Income Tax Withheld Reg. Futures Contracts * Details of each Gross Proceeds transaction are reported to the IRS. Refer to the 1099-B section of this statement for these details INT Interest Income OMB No Box Amount 1 Interest Income , Early Withdrawal Penalty Interest on U.S. Savings Bonds & Treasury Obligations , Federal Income Tax Withheld Investment Expenses Foreign Tax Paid Foreign Country or U.S. Possession n/a 8 Tax-Exempt Interest , Specified Private Activity Bond Interest DIV Dividends and Distributions OMB No Box Amount 1a Total Ordinary Dividends , b Qualified Dividends a Total Capital Gain Distributions b Unrecaptured Section 1250 Gain c Section 1202 Gain d Collectibles (28%) Gain Nondividend Distributions Federal Income Tax Withheld Investment Expenses Foreign Tax Paid Foreign Country or U.S. Possession n/a 8 Cash Liquidation Distributions , NonCash Liquidation Distributions Summary of Original Issue Discount Amount Original Issue Discount (Non-U.S. Treasury Obligations) Other Periodic Interest Federal Income Tax Withheld Original Issue Discount on U.S. Treasury Obligations Investment Expenses This is important tax information and is being furnished to the Internal Revenue Service (IRS). If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. 11 Page 2 of 21 5

8 6 Summary Section (continued) 12. Distributions reported on IRS Form 1099-MISC Miscellaneous Income reflect substitute payments in lieu of dividends or interest credited during These amounts were allocated to an account pursuant to IRS regulations and represent amounts we received as a result of the deemed transfer of securities for use in a short sale. Royalties show income earned from royalty trusts. Other Income, such as substitute payment reimbursements, should be reported as other income on your client s tax returns. 13. The summary of information we do not report to the IRS is provided to your clients to help them prepare their tax returns. SAMPLE OF THE TAX INFORMATION STATEMENT Form 1099-MISC 2007 Miscellaneous Income (OMB No ) Box Amount 2 Royalties Other Income Federal Income Tax Withheld Substitute Payments in Lieu of Dividends or Interest Summary Of Transactions We Do Not Report To The IRS (See enclosure for additional information) Amount Municipal Original Issue Discount Original Issue Discount Subject to Alternative Minimum Tax Original Issue Discount Not Subject to Alternative Minimum Tax Total Municipal Original Issue Discount , Non-Reportable Distributions Partnership Cash Distributions Trust Distributions Return of Principal Distributions Total Non-Reportable Distributions Equity Options Transactions Cost of Equity Option Purchases , Equity Option Proceeds and Expirations , Securities Purchased Net Cost of Securities Purchased , Accrued Interest Purchased U.S. Corporation U.S. Government , U.S. Government Agencies Foreign Source Tax-Exempt Tax-Exempt Specified Private Activity Total Accrued Interest Purchased , Margin Interest Expense Charged to Your Account SAMPLE STATEMENT 12 Summary Of Transactions We Do Not Report To The IRS (See enclosure for additional information) Amount Municipal Original Issue Discount Original Issue Discount Subject to Alternative Minimum Tax Original Issue Discount Not Subject to Alternative Minimum Tax Total Municipal Original Issue Discount , Non-Reportable Distributions Partnership Cash Distributions Trust Distributions Return of Principal Distributions Total Non-Reportable Distributions Equity Options Transactions Cost of Equity Option Purchases , Equity Option Proceeds and Expirations , Securities Purchased Net Cost of Securities Purchased , Accrued Interest Purchased U.S. Corporation U.S. Government , U.S. Government Agencies Foreign Source Tax-Exempt Tax-Exempt Specified Private Activity Total Accrued Interest Purchased , Margin Interest Expense Charged to Your Account Electronic Deposits Summary Total Electronic Deposits , Other Deposits Summary Total Other Deposits , Checking Activity Summary Total Checking Activity (3,299.69) Debit Card Activity Summary Total Debit Card Activity (9,162.98) Electronic Withdrawals Summary Total Electronic Withdrawals (4,898.25) Other Withdrawals Summary Total Other Withdrawals (28,750.00) Schedule of Realized Gains and Losses Total Short Term Realized Gain/Loss , Total Long Term Realized Gain/Loss , Total Short Term and Long Term Realized Gain/Loss ,

9 SAMPLE OF THE TAX INFORMATION STATEMENT Proceeds from Broker and Barter Exchange Transactions 1. Proceeds from broker and barter exchange transactions are reported on IRS Form 1099-B Proceeds from Broker and Barter Exchange Transactions. These transactions include sales, redemptions, tender offers, maturities, etc. Each transaction in this section is reported to the IRS. 2. Transactions are listed in CUSIP sequence. 3. Short sales are indicated with the (*) symbol next to the amount displayed in the Proceeds (Less Commissions & Fees) (Box 2) column. 4. If proceeds were subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column Form 1099-B PROCEEDS FROM BROKER AND BARTER EXCHANGE TRANSACTIONS OMB No (For individuals, report details on Form 1040, Schedule D, Line 1 or 8.) SAMPLE STATEMENT This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported Trade/Process Proceeds Federal Income Description CUSIP Date (Less Commissions & Fees) Tax Withheld (Box 7) (Box 1b) (Box 1a) Quantity (Box 2) (Box 4) EXXON MOBIL CORP COM /07/ ,000.00* 10/20/ , , OCCUSYSTEMS INC COM /17/ CHEVRON CORP /02/ , PENN NATL GAMING INC /04/ , UNITED STATES TREAS BILLS PT2 04/08/ ,000 99, % 04/08/07 B/E U.S. TREAS NOTE BU1 05/15/ ,000 55, % 05/15/09 B/E DTD 05/15/97 TOTAL 173, *Short Sale 7

10 SAMPLE OF THE TAX INFORMATION STATEMENT Regulated Futures Contracts 1. Regulated futures contracts are reported on IRS Form 1099-B. 2. The Profit or (Loss) Realized in 2007 subsection displays contracts settled or closed during Transactions are listed in CUSIP sequence. CUSIPs are displayed below security descriptions. 4. The expiration date and strike price are displayed in the Expiration Date/Strike Price column. 5. If any proceeds were subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column. 6. The Unrealized Profit or (Loss) on Open Contracts 12/31/2006 subsection provides details of all contracts open at the end of Open contracts are marked to market as of December 31, 2006 to determine unrealized profit or (loss). 7. The Unrealized Profit or (Loss) on Open Contracts 12/31/2007 subsection provides details of contracts open at the end of Open contracts are marked to market as of December 31, 2007 to determine unrealized profit or (loss). 8. The Aggregate Profit or (Loss) Form 1099-B (Box 11) equals the realized profit or loss adjusted for the unrealized profit or loss at December 31, 2006 and December 31, Aggregate profit or loss is calculated as follows: Profit or (Loss) Realized in 2007 Less: Unrealized Profit or (Loss) on Open Contracts 12/31/2006 Plus: Unrealized Profit of (Loss) on Open Contracts 12/31/ Form 1099-B REGULATED FUTURES CONTRACTS This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. SAMPLE STATEMENT PROFIT OR (LOSS) REALIZED IN 2007 Closing Buy/ Opening Closing Realized Federal Income Expiration Date/ Trade/Process Number of Sell/ Contract Contract Profit/(Loss) 4 Tax Withheld Description Strike Price Date Contracts Expire Amount Amount (Box 8) (Box 4) PUT 100 S & P EXP /15/ Sell 1, , INDEX CUSIP: 12483B9IO TOTAL 07/10/ Sell , UNREALIZED PROFIT OR (LOSS) ON OPEN CONTRACTS 12/31/06 Opening Opening Market Unrealized Expiration Date/ Trade Number of Long/ Contract Value Profit/(Loss) Description Strike Price Date Contracts Short Amount 12/31/06 (Box 9) PUT 100 S & P EXP /31/ Long 1, , INDEX CUSIP: TF TOTAL UNREALIZED PROFIT OR (LOSS) ON OPEN CONTRACTS 12/31/07 Opening Opening Market Unrealized Federal Income Expiration Date/ Trade Number of Long/ Contract Value Profit/(Loss) Tax Withheld Description Strike Price Date Contracts Short Amount 12/31/07 (Box 10) (Box 4) PUT 100 S & P EXP /11/ Short 3, , , INDEX CUSIP: TC TOTAL 1, Aggregate Profit or (Loss) Form 1099-B; Box 11 (Individuals report on Form 6781, line 1, column b) 2, Total Federal Income Tax Withheld on Regulated Futures Contracts

11 SAMPLE OF THE TAX INFORMATION STATEMENT Interest Income 1. Interest income is reported on IRS Form 1099-INT. Details are displayed on tax information statements to provide your clients with transaction-level information. 2. Transactions for each security are classified by CUSIP/ Security Type. 3. Transactions are listed in CUSIP sequence. 4. Separate subtotals are reported in three categories for interest earned (if applicable): U.S. corporations, foreign corporations, U.S. government agencies, and tax-exempt interest from tax-exempt bonds, mutural funds, and UITs. 5. If any income was subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column. 6. Your clients may deduct investment expenses from single-class REMICs and UITs as other expenses on IRS Form 1040, Schedule A, subject to the 2% limit. SAMPLE STATEMENT 1 INTEREST INCOME (Details of Form 1099-INT) 2 Interest on U.S. Savings Federal Income Investment Foreign CUSIP/ Interest Income Bonds and Treasury Tax Withheld Expenses Tax Paid Description Security Type Date Paid (Box 1) Obligations (Box 3) (Box 4) (Box 5) (Box 6) BROWNING FERRIS INDS AG0 12/15/ INC SUB DEV CONV U.S. Corp % 07/18/07 B/E 3 CENCO INC SUB DEB CONV AC8 08/30/ % 11/01/10 REG Foreign CITICORP SUB NT DK2 03/15/ % 02/01/18 REG U.S. Corp. FEDL NATL MTG ASSN DEB 31358DAV6 01/10/2007 1, % 07/10/08 REG DTD 07/10/92 Govt Agency 06/30/2007 1, , U S TREAS BD BU1 05/15/2007 1, % 05/15/09 B/E U.S. Govt 08/29/ # 1, U S TREAS BILL PZ8 03/08/2007 4, % 03/08/07 B/E U.S. Govt PURCHASE PRICE: 245, Quantity: 250,000 U S TREAS BILL QD6 06/16/2007 1, % 06/16/07 B/E U.S. Govt IRS Publication 1212 rate per $1000: Quantity: 30,000 FEDERAL HOME LN BKS 3133M0QP9 10/21/ CONS BD Govt Agency 0.000% 10/21/07 B/E PURCHASE PRICE: 14, Quantity: 15,000 FORD MOTOR CREDIT CORP 34539UP30 02/03/ DISCOUNT COMMERCIAL U.S. Corp. PAPER 0.00% 02/03/07 B/E PURCHASE PRICE: 9, Quantity: 10,000 Interest on Your Credit Balance Interest Income U.S. Corporations and on Your Credit Balance 1, Interest Income Foreign Corporations Interest Income U.S. Government Agencies 3, TOTAL 4, , # Represents Accrued Interest Sold 5 6 9

12 SAMPLE OF THE TAX INFORMATION STATEMENT Tax-Exempt Interest Income 1. Tax-Exempt interest income is reported on the Form 1099-INT. 2. Accrued interest received on municipal notes and bonds sold between interest payment dates is reported on a settlement date basis and is included in the tax-exempt interest income category. Amounts representing accrued interest sold are identified with a symbol (*) on your clients statements. It may be necessary to reduce the amount of the tax-exempt interest income category by the amount of accrued interest purchased. SAMPLE STATEMENT 1 TAX-EXEMPT INTEREST (Details of Form 1099-INT) Tax-Exempt Specified Private Activity Federal Income Investment Foreign CUSIP/ Interest Bond Interest Tax Withheld Expenses Tax Paid Description Security Type Date Paid (Box 8) (Box 9) (Box 4) (Box 5) (Box 6) WESTCHESTER CNTY NY AS4 02/01/ INDL DEV AGY ARPT 08/01/ FAC REV WESTCHESTER ARPT ASSOC-SER A DTD 02/01/95 CLB SULLIVAN WEST CENT AZ9 04/15/ SCH DIST NY 10/17/ % 04/15/23 B/E DTD 04/15/05 CLB 2 TOTAL 1, Dividends and Distributions 1. Dividends and distributions are reported on IRS Form 1099-DIV. Details are displayed on tax information statements to provide your clients with transaction-level information. 2. Transactions are listed in CUSIP sequence (although CUSIPs are not displayed). 3. Subtotals in the Total Ordinary Dividends (Box 1a) column are provided for income from total U.S. and foreign corporations to assist in preparing tax returns. 4. Dividends that are eligible for a 15% (or 5%) maximum rate are separated in the Qualified Dividends (Box 1b) column. 5. If any income was subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column. 6. If any income was subject to foreign tax, the foreign tax paid is reported in the Foreign Tax Paid (Box 6) column. 1 DIVIDENDS AND DISTRIBUTIONS (Details of Form 1099-DIV) SAMPLE STATEMENT 2 Total Ordinary Qualified *Total Capital Nondividend Federal Income Investment Foreign Dividends Dividends Gain Distributions Distributions Tax Withheld Expenses Tax Paid Description Date Paid (Box 1a) (Box 1b) (Box 2a) (Box 3) (Box 4) (Box 5) (Box 6) BRITISH PETE PLC ADRS 07/03/ FORTIS CAPITAL FUND 06/17/ NATIONAL LOAN BK HOUSTON TEX 02/17/ PHILIP MORRIS COMPANIES INC 04/11/ /11/ PRICE REIT INC CL B 06/30/ REUTERS HLDGS INC 05/06/ PUTNAM FUND A ** 01/11/ Dividends U.S. Corporations Dividends Foreign Corporations TOTAL 1, * Refer to the Capital Gain Distributions section for details. ** We have not yet received information to properly classify the income paid by this company. If we receive information, we will send you a revised tax information statement. See Tax Guide for details. 10

13 SAMPLE OF THE TAX INFORMATION STATEMENT Capital Gain Distribution 1. The Capital Gain Distributions section identifies various classifications of capital gain distributions from mutual funds and REITs. NOTE: This section does not include short term capital gain distributions from mutual funds and REITs. 2. The sum of the Unrecaptured Section 1250 Gain (Box 2b) column, Section 1202 Gain (Box 2c) column, Collectibles (28%) Gain (Box 2d) column, and Long Term Capital Gain Distributions column is displayed in the Total Capital Gain Distributions (Box 2a) column, which has been carried forward from the Dividends and Distributions section. SAMPLE STATEMENT 1 CAPITAL GAIN DISTRIBUTIONS (For individuals, report Total Capital Gain Distributions on Form 1040, Schedule D, Line 13, column (f). To report Unrecaptured Section 1250 Gain, Section 1202 Gain, and Collectibles (28%) Gain, see instructions to Form 1040, Schedule D.) 2 Total Capital Gain Unrecaptured Section 1202 Collectibles Long Term Capital Distributions Section 1250 Gain Gain (28%) Gain Gain Distributions Description Date Paid (Box 2a) (Box 2b) (Box 2c) (Box 2d) PRICE REIT INC CL B 06/30/ PUTNAM FUND A 01/11/ TOTAL Liquidation Distributions LIQUIDATION DISTRIBUTIONS (Details of Form 1099-DIV) SAMPLE STATEMENT Cash Liquidation Noncash Liquidation Distributions Distributions (Fair Market Value) Federal Income Description Date Paid (Box 8) (Box 9) Tax Withheld NATIONAL LOAN BK HOUSTON TEX 02/17/2007 1, TOTAL 1, Total Federal Income Tax Withheld on Dividends and Distributions: (Box 4) 11

14 SAMPLE OF THE TAX INFORMATION STATEMENT Original Issue Discount 1. Original Issue Discount (OID) is reported on IRS Form 1099-OID. OID on U.S. Treasury Obligations (Box 6) is reported separately. 2. Transactions are listed in CUSIP sequence. 3. If any income is subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column Form 1099-OID ORIGINAL ISSUE DISCOUNT OMB No (For individuals, report details on Form 1040; Schedule B; Line 1.) SAMPLE STATEMENT 2 This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. Other Federal OID on U.S. Accrual Daily OID Original Issue Periodic Income Tax Treasury Investment Lot Lot Begin/ Days Rate Discount Interest Withheld Obligations Expenses Description No. Quantity Entry Date Held Per $1,000 (Box 1) (Box 2) (Box 4) (Box 6) (Box 7) FNMA GTD REMIC PASS For a Detailed Breakdown THRU CTF REMIC See the Additional Written Statement TR CL-108-K 9.000% 02/25/20 B/E CUSIP: 31358FAN9 MAXXAM INC 1 10,000 01/01/ SR SUB RESET NT 05/15/ % 05/20/06 REG 09/15/ DTD 03/01/ * CUSIP: AD8 01/04/ CERTIFICATES ACCRUAL 1 12,000 01/01/ TREAS SECS SER-Z 02/15/ INT PRIN PMT ON 12% * 2003 TREAS BD 2 12,000 01/01/ % 05/15/08 02/15/ CUSIP: BK * Security Total Amount Reportable to the IRS CERTIFICATES ACCRUAL 1 6,000 01/01/ * TREAS SECS SER-J INT PMT ON 875% 2012 TREAS BD 0.000% 05/15/10 CUSIP: XE3 TOTAL *This may not be the correct figure to report on your income tax return. See instructions for details Miscellaneous Income 1. The total amount displayed in the Miscellaneous Income section is reported on IRS Form 1099-MISC. Details are displayed on tax information statements to provide your clients with transaction-level information. 2. Transactions are listed in CUSIP sequence (although CUSIPs are not displayed). 3. If any income was subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column. SAMPLE STATEMENT MISCELLANEOUS INCOME (Details of Form 1099-MISC) Substitute Payments in Lieu Federal Income Royalties Other Income of Dividends or Interest Tax Withheld Description Date Paid (Box 2) (Box 3) (Box 8) (Box 4) PHILIP MORRIS COMPANIES INC 04/11/ PRAXAIR INC 03/15/ TOTAL

15 SAMPLE OF THE TAX INFORMATION STATEMENT Transactions We Do Not Report to the IRS 1. Information regarding transactions that we do not report to the IRS is provided to aid your clients in the preparation of their tax returns. The section consists of the following five categories: Municipal Original Issue Discount, Non-reportable Distributions, Equity Options Transactions, Securities Purchased, and Margin Interest Expense. MUNICIPAL ORIGINAL ISSUE DISCOUNT 2. Transactions are listed in CUSIP sequence. 3. Municipal original issue discount is classified in this section as either Original Issue Discount Subject to Alternative Minimum Tax or Original Issue Discount Not Subject to Alternative Minimum Tax. SAMPLE STATEMENT 1 MUNICIPAL ORIGINAL ISSUE DISCOUNT Accrual Original Issue Discount Original Issue Discount 2 Lot Rate Lot Period Days Daily OID Rate Subject to Alternative Not Subject to Alternative Description CUSIP No. Source Quantity Begins Held per $1,000 Minimum Tax Minimum Tax ALLEGHENY CNTY PA AN5 1 Calc. 20, ARPT REV GTR PITTS INTL ARPT SER D SUBJ TO AMT TO YLD 8.3% 7.750% 01/01/20 REG DTD 07/01/89 CLB TRIBOROUGH BRDG & GD1 1 Calc. 75, TUNL AUTH N.Y. REVS CONVENTION CTR PROJ SER D O.I.D % 01/01/13 REG DTD 06/15/86 PRF Security Total... TOTAL NON-REPORTABLE DISTRIBUTIONS 4. Transactions are listed in CUSIP sequence. 5. This section displays nonreportable distributions such as Partnership Cash Distributions, Trust Distributions, and Return of Principal Distributions. SAMPLE STATEMENT

16 SAMPLE OF THE TAX INFORMATION STATEMENT EQUITY OPTIONS TRANSACTIONS 6. The Equity Options Transactions section includes purchases, sales, expirations, exercises, and assignments. 7. Transactions are listed in CUSIP sequence. SAMPLE STATEMENT 6 7 EQUITY OPTIONS TRANSACTIONS Expiration Date/ Trade/Process Description Strike Price Date Transaction Type Quantity Purchase Amount Proceeds PUT 100 DELL EXP 75 08/18/2007 Sell Open COMPUTER CORP CUSIP: TO PUT 100 DELL EXP 75 08/21/2007 Expiration COMPUTER CORP CUSIP: TO CALL 100 LANCER GRP. EXP 16 5/8 03/16/2007 Buy Open 25 6, CUSIP: 51461D240 CALL 100 LANCER GRP. EXP 16 5/8 06/30/2007 Sell Close 25 7, CUSIP: 51461D240 TOTAL 6, , SECURITIES PURCHASED 8. The Securities Purchased section provides your clients with information needed to help establish the cost basis of investments. 9. Transactions are listed in CUSIP sequence. 10. Accrued Interest Purchased related to the acquisition of debt obligations is displayed in this section. SAMPLE STATEMENT 8 SECURITIES PURCHASED 9 Trade/Process Accrued Interest Purchased Description CUSIP Date Quantity Net Cost Amount Security Type GRUPO TELEVISA S A P4987VAD5 11/15/ ,000 17, Foreign Source EURO BOND ISIN # USP4987VAD % 05/15/08 B/E DTD 05/13/97 ANN TAYLOR INC AC3 02/23/ ,000 41, U.S. Corporation SUB NT 09/25/ % 06/15/09 REG DTD 06/28/94 CLB FOXMEYER CORP /21/ , GNMA GTD MTG PASS R51 03/08/ ,995 10, U.S. Government Agency THRU CTFS POOL # % 04/15/05 DTD 10/01/75 BUFFALO NY SER A 4.400% B2 02/04/ ,000 26, Tax-Exempt 11/15/14 B/E DTD 05/16/03 CLB NEW YORK ST RFDG WM0 03/03/ ,000 50, Tax-Exempt SER B 7.200% 11/15/06 REG DTD 08/01/87 CLD PACIFIC TEL&TEL CO AW2 05/11/ , , U.S. Corporation DEB 7.800% 03/01/08 REG DTD 03/01/72 TENNESSEE HSB DEV AGY T93 08/02/ ,000 50, Specified Private Activity HOMEOWNERSHIP PG C 3.600% 07/01/09 B/E DTD 07/15/05 U S TREAS NT E73 03/31/2007 5,000 3, , U.S. Government 6.875% 03/31/08 B/E DTD 03/31/93 TOTAL 352, ,

17 SAMPLE OF THE TAX INFORMATION STATEMENT MARGIN INTEREST EXPENSE 11. The Margin Interest Expense Charged to Your Account section provides the amount of margin interest charged to an account during the year. Margin interest may be deductible on a tax return. SAMPLE STATEMENT 11 Additional Written Statement Collateralized Debt Obligations (CDOs) (Including REMICs) 1. We are required to report certain additional information to your clients regarding CDOs, including REMICs. We provide this on an Additional Written Statement. Your clients need this additional information to complete their tax returns. The Additional Written Statement also provides calculations of interest income and OID. The Additional Written Statement, however, is provided only to your clients, and not to the IRS. 2. The amount displayed in the Aggregate Amount of Original Issue Discount column is calculated as [(quantity) x (days held) x (daily original issue discount)] 1,000. For instance, using the numbers below, [(50,000) x (30) x ( )] 1,000 = The amount displayed in the Aggregate Amount of Accrued Interest Income column is calculated as [(quantity) x (days held) x (daily accrued interest income)] 1,000. For instance, using the numbers below, [(50,000) x (30) x ( )] 1,000 = Depending on the type of CDO held in your client s account, accrued interest income is reported on either IRS Form 1099-INT or 1099-OID. OID is reported on IRS Form 1099-OID. 1 ADDITIONAL WRITTEN STATEMENT COLLATERALIZED DEBT OBLIGATIONS (Including REMICs) SAMPLE STATEMENT Per $1,000 of Original Principal Aggregate Amount Of Daily Daily 2 3 Ending Accrual Beginning Original Accrued Original Accrued Actual Market Lot Period Days Adjusted Issue Interest Issue Interest Interest Discount CUSIP No. Quantity Begins Held Issue Price Discount Income Discount Income Paid (Cash) Fraction FNMA GTD REMIC PASS THRU CTF REMIC 31358FAN9 1 50,000 08/26/ ,000 09/26/ Lot Total: Security Total: P-B CMO TR TR 89 CMO SER 11 CL 11-D 69290JBC5 1 30,000 01/25/ ,000 02/25/ /25/ Lot Total: Security Total:

18 SAMPLE OF THE TAX INFORMATION STATEMENT Electronic Deposits SAMPLE STATEMENT ELECTRONIC DEPOSITS Process/ Settlement Date Activity Type Description Amount 01/31/07 ELECTRONIC TRANSACTION DIRECT DEPOSIT THE BOARD OF PEN 1, /31/07 ELECTRONIC TRANSACTION DIRECT DEPOSIT TCHRS R ET SYS Total Electronic Deposits 2, Other Deposits SAMPLE STATEMENT OTHER DEPOSITS Process/ Settlement Date Activity Type Description Quantity Price Amount 02/01/07 CHECK RECEIVED CHECK RECEIVED , /25/07 CHECK RECEIVED CHECK RECEIVED , /09/07 FEDERAL FUNDS RECEIVED CITIBANK NA NYBD CIT , Total Other Deposits 54, Checking Activity SAMPLE STATEMENT CHECKING ACTIVITY Process Date Check Date Written Number Payee Check Category Amount Code 0 11/26/07 11/26/ POSTY CARDS CODE O (69.69) 11/26/07 10/26/ DR. GREENE CODE O (340.00) 12/30/07 11/30/ SILVER CREEK FARMS CODE O (390.00) Code 0 Total (799.69) Charitable Contributions 01/07/07 12/15/ GEORGETOWN UNIV CHARITABLE CONTRIBUTIONS (1,000.00) 01/03/07 12/15/ ST JOSEPHS PREP CHARITABLE CONTRIBUTIONS (500.00) 03/09/07 02/28/ CONVENT OF THE SACRED HEART CHARITABLE CONTRIBUTIONS (1,000.00) Charitable Contributions Total (2,500.00) Total Checking Activity (3,299.69) Debit Card Activity SAMPLE STATEMENT DEBIT CARD ACTIVITY Process Transaction Date Date Vendor Location Reference Number Amount Cash Disbursements 10/25/07 10/25/07 ATM WITHDRAWAL HOLLYWOOD (2,000.00) 11/22/07 11/22/07 ATM WITHDRAWAL MAIN & VINE STS (2,000.00) 12/25/07 12/24/07 ATM WITHDRAWAL CHRISTMAS CITY (5,000.00) Cash Disbursements Total (9,000.00) Retail Stores 06/23/07 06/22/07 MARKS & SPENCER SPRINGFIELD VA (208.25) 06/24/07 06/23/07 MARKS & SPENCER SPRINGFIELD VA Retail Stores Total (162.98) Total Debit Card Activity (9,162.98) 16

19 SAMPLE OF THE TAX INFORMATION STATEMENT Electronic Withdrawals SAMPLE STATEMENT ELECTRONIC WITHDRAWALS Process Settlement Date Activity Type Description Amount 01/07/07 ELECTRONIC TRANSACTION AUTHORIZED DEBIT WFHM MORTGAGE 2,425.30) 12/14/07 ELECTRONIC TRANSACTION AUTHORIZED DEBIT AMEXARCDALAMERICAN EXPRESS (2,472.95) Total Electronic Withdrawals (4,898.25) Other Withdrawals SAMPLE STATEMENT OTHER WITHDRAWALS Process Settlement Date Activity Type Description Quantity Price Amount 05/02/07 FEDERAL FUNDS SENT FIRST UNION NATIONAL (23,750.00) 08/10/07 FEDERAL FUNDS SENT BOSTON SAFE DEPOSIT (5,000.00) Total Other Withdrawals (28,750.00) Schedule of Realized Gains and Losses SAMPLE STATEMENT SCHEDULE OF REALIZED GAINS AND LOSSES Disposition Acquisition Closing Security Realized Date Date Transaction Description Identifier Quantity Cost Basis Proceeds Gain/Loss Long Term 04/17/07 05/23/04 SELL OCCUSYSTEMS INC COM OCU (15.75) 05/15/09 05/15/97 MAT U. S. TREAS NOTE BU1 55, , , % 05/15/09 B/E DTD 05/15/97 Original Cost Basis: 49, /04/07 08/08/05 SELL PENN NATL GAMING INC PENN , , /02/07 01/11/01 SELL CHEVRON CORP CVX , , Total Long Term 66, , Short Term 03/15/07 09/22/06 SELL PUT 100 S&P 500 INDEX SBX-I , , /08/07 02/25/07 SELL UNITED STATES TREAS PT2 100, , , BILLS 0.000% 04/08/07 06/30/07 03/16/07 SELL CALL 100 LANCER GRP IGG-LR , , , /10/07 11/12/06 SELL PUT 100 S&P 500 INDEX SBX-I , /21/07 10/22/06 EXP PUT 100 DELL COMPUTER VK-ML , (1,234.50) 10/20/07 04/10/07 SELL EXXON MOBIL CORP COM XOM , , Total Short Term 119, , , Total Long Term and Short Term 185, , ,

20 SAMPLE OF THE TAX INFORMATION STATEMENT Revised Tax Summary Statement The revised tax summary statement, which is included with the revised tax information statement, explains revisions. The pages of the revised tax summary statement and the revised tax information statement are numbered separately. The revised tax summary statement includes the following information: 1. Dates listed in the Date column are based on original transaction dates (not revised activity dates). 2. The Prior Amount column displays activity amounts reported on the initial tax information statement. Amounts in this column are not displayed on the revised tax information statement. 3. Amounts displayed in the Revised Amount column are based on information we received after the initial statement was mailed. 4. The Reporting Column displays the column name of the particular statement section affected by the revision. 5. The Statement Section column displays the statement section name affected by the revision. Use the information in the Statement Section column and the Reporting Column to locate a particular transaction. 6. The message *** Descriptive Information Has Changed See Enclosure *** indicates that some information other than a dollar amount has changed. Descriptive information may include security description, date, quantity, security type, long/short, and rate source. Tel: SAMPLE STATEMENT Summary of Gross Proceeds and Regulated Futures Contracts Amount Gross Proceeds (Less Commissions and Fees) , * Federal Income Tax Withheld Gross Proceeds Regulated Futures Contracts: Profit or (Loss) Realized in Unrealized Profit or (Loss) on Open Contracts 12/31/ Unrealized Profit or (Loss) on Open Contracts 12/31/ , Aggregate Profit or (Loss) , Federal Income Tax Withheld Reg. Futures Contracts * Details of each Gross Proceeds transaction are reported to the IRS. Refer to the 1099-B section of this statement for these details INT Interest Income OMB No Box Amount 1 Interest Income , Early Withdrawal Penalty Interest on U.S. Savings Bonds & Treasury Obligations , Federal Income Tax Withheld Investment Expenses Foreign Tax Paid Foreign Country or U.S. Possession n/a 8 Tax-Exempt Interest , Specified Private Activity Bond Interest NOTICE: This tax statement is incomplete as it relates to your CDO, CMO, REMIC, FASIT, and WHMT.You should not file your tax return until you receive a revised statement from us with the applicable information. (See the message at the end of this statement) DIV Dividends and Distributions OMB No Box Amount 1a Total Ordinary Dividends , b Qualified Dividends a Total Capital Gain Distributions b Unrecaptured Section 1250 Gain c Section 1202 Gain d Collectibles (28%) Gain Nondividend Distributions Federal Income Tax Withheld Investment Expenses Foreign Tax Paid Foreign Country or U.S. Possession n/a 8 Cash Liquidation Distributions , NonCash Liquidation Distributions Summary of Original Issue Discount Amount Original Issue Discount (Non-U.S. Treasury Obligations) Other Periodic Interest Federal Income Tax Withheld Original Issue Discount on U.S. Treasury Obligations Investment Expenses This is important tax information and is being furnished to the Internal Revenue Service (IRS). If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. 6 18

21 CORRECTING TAX INFORMATION STATEMENTS Tax Correction Requests must be submitted via Service Center. Pershing LLC Attention: Tax Reporting Department One Pershing Plaza, 12th Floor Jersey City, New Jersey Fax Number: (201) AMOUNTS To correct an amount, include the following documentation: Trade confirmation (if applicable) Brokerage account statement (or 12 monthly statements if information pertains to the entire year) TAXPAYER IDENTIFICATION NUMBERS (TIN) Current year (2007) retail Form 1099 corrections due to SSN or TIN updates are processed systematically until March 31, After March 31, 2008, you can request a duplicate Form 1099 on TXAS after you change the SSN/TIN and the statement will be printed in the next revision with the correct SSN/TIN. Please note: Prior year SSN and TIN updates must always be submitted via Service Center as they will not occur systematically. IMPROPER TAX INFORMATION STATEMENTS To correct a foreign account for a foreign client who received a Tax Information Statement in error, update the following documents: Obtain IRS Form W-8 BEN, W-8 ECI, W-8 EXP, or W-8 IMY from the account owner and update the account s records in accordance with your normal procedures. Submit Tax Correction Request via Service Center to Pershing s Tax Reporting Department. Foreign accounts should only receive a tax information statement if federal tax (backup withholding) is withheld. The Tax and Year-End Statement which combines the yearend statement with the 1099 tax statement is a joint effort between the Tax Reporting Department and the Portfolio Evaluation area. Please note: All requests for updates to the cost basis information provided on the combined statement must first be sent via Service Center to the Portfolio Evaluation area. Once confirmation has been received that the Portfolio Evaluation area has updated the cost basis information (generally 2-3 business days), you must request a duplicate 1099 via TXAS in order for a revised statement to be mailed to the address of record and updated to e-document Suite. See page 34 and follow the instructions for the PRINT REQUEST ADD SCREEN. EXEMPT ENTITY RECEIVING TAX INFORMATION STATEMENTS To correct an exempt entity account (refer to page 20) for a client who received a tax information statement, submit IRS Form W-9 to Account Services with EXEMPT PAYEE marked on the form. Once this is done, submit a Service Center request to delete the Form If there was no backup withholding, the tax information statement will be deleted and your client will receive a confirmation. NOTE: If the account status is changed (i.e., exempt to nonexempt, foreign to U.S. living abroad, etc.), a Form 1099 correction request must be submitted via Service Center. To insure that the proper reporting is done, the Tax Reporting Department must be made aware of these account updates. REVIEW OF CORRECTION REQUESTS Requests for corrections are reviewed upon receipt and are approved once we receive the necessary documentation. Once requests are approved and processed, the most-current information can be viewed on TXAS and e-document Suite. REVISED TAX INFORMATION STATEMENTS Please note that revised statements for current year (2007) Form 1099 correction request received before May 31, 2008 will post to e-document Suite. After May 31, 2008, all Form 1099 correction requests received (prior and current year) will post to Online Documents available via the NetExchange platform. CANCELED TRADES, AS-OF TRADES, REVERSED PRIOR YEAR DIVIDEND, AND BOND INTEREST PAYMENTS If these transactions were processed after December 31, 2007, do not send correction requests to Pershing. We will automatically generate corrected statements resulting from these transactions until April 30, WHO TO CONTACT WITH QUESTIONS If you have any questions, contact Pershing s Tax Reporting Help Desk at (800) for calls originating within the United States or (201) for calls originating outside of the United States; or fax a Tax Correction Request Form to (201)

22 CORRECTING TAX INFORMATION STATEMENTS SAMPLE STATEMENT 20

23 Fax to Pershing s Tax Reporting Department at (201) PLEASE PRINT OR TYPE ALL INFORMATION: NAME: SUNDRY ACCOUNT NUMBER: DELIVER TO (NAME): TELEPHONE NUMBER: ADDRESS: CITY: STATE: ZIP CODE: NOTE: This form should not be used to request duplicate monthly statements on individual accounts. MEDIA AND SORT SELECTION (CHARGES MAY APPLY FOR THIS MEDIA): PAPER COPIES GROUP BY INTRODUCING BROKER-DEALER NUMBER: (PROVIDE APPROPRIATE INTRODUCING BROKER-DEALER NUMBER) This will include all 1099 tax information statements for the selected introducing broker-dealer sorted by office number and investment professional number within each office. PAPER COPIES SPECIFIC OFFICE/BRANCH NUMBERS: (PROVIDE THE APPROPRIATE OFFICE NUMBERS) This will include all 1099 tax information statements for the selected office range(s) sorted by the investment professional number within the office. PAPER COPIES INVESTMENT PROFESSIONAL NUMBER OFFICE NUMBER: OFFICE NUMBER: OFFICE NUMBER: REQUEST FOR TAX INFORMATION STATEMENTS INVESTMENT PROFESSIONAL NUMBER: INVESTMENT PROFESSIONAL NUMBER: INVESTMENT PROFESSIONAL NUMBER: OFFICE NUMBER: INVESTMENT PROFESSIONAL NUMBER: This will include all 1099 tax information statements for a specific investment professional in the selected office range(s). You must include each office number to which the investment professional number is assigned in order to receive all of the appropriate statements. NOTE: A charge of $2.00 per statement for paper copies applies if you have access to e-document Suite TM. CD-ROM REQUESTS ADDITIONAL COPIES CD-ROMs will be available after June CD-ROM FIRM SORT, COPY FOR INTRODUCING BROKER-DEALER NUMBER: This will include all 1099 tax information statements for the selected firm. CD-ROM SPECIFIC OFFICE SORT, FOR OFFICE(S): This will include all 1099 tax information statements for the selected office range(s) for your firm. NOTE: Charges for CD-ROMs apply for additional copies and specific office sorts. If you have any questions, please contact the Pershing Tax Reporting Help Desk at (800) or (201) for calls originating outside of the United States. 21 FRM-RFTAXSTMT-1-07

24 TAX REPORTING CALENDAR SUNDAY MONDAY TUESDAY 1 JANUARY 2008 WEDNESDAY THURSDAY FRIDAY SATURDAY 5 SUNDAY MONDAY FEBRUARY 2008 TUESDAY WEDNESDAY THURSDAY 1 FRIDAY SATURDAY Income Reallocation Cutoff for Initial Mailing Revision Reports on Report Center Mailing Revised Statements 20 Mailing Puerto Rico Statements 27 Tax Statement Mailing Revision 1 Cutoff Date SUNDAY 31MONDAY TUESDAY MARCH 2008 WEDNESDAY THURSDAY FRIDAY SATURDAY 1 SUNDAY MONDAY TUESDAY 1 APRIL 2008 WEDNESDAY 2 THURSDAY 3 4 FRIDAY SATURDAY S Statement to Report Center Revision Reports on Report Center Revision 18 Reports on Report Center 5 PR Daily Revisions 6 Mailing 1042-S 7 Statements Mailing I Revised Revision 2 Cutoff Revision Reports on Report Center PR Daily Revisions 19 PR Daily Revisions Mailing Revised Statements Daily Revisions PR Daily Revisions 14 Mailing REMIC Statements 21 Revision 3 Cutoff Date PR Daily Revisions and Daily 1099 Revisions PR Daily Revisions and Daily 1099 Revisions PR Daily Revisions Daily 1099 Revisions Create IRS FiIes Daily 1099 Revisions Daily 1099 Revisions Daily Revisions and PR Daily Revisions SUNDAY MONDAY TUESDAY MAY 2008 WEDNESDAY THURSDAY 1 2 FRIDAY SATURDAY 3 Daily 1099 Revisions Daily 1099 Revisions Daily 1099 Revisions Daily 1099 Revisions Daily 1099 Revisions DISCLAIMER: All dates may be subject to change. 22

25 IRS FORM 1099-B PROCEEDS FROM BROKER AND BARTER EXCHANGE TRANSACTIONS SECURITIES TRANSACTIONS REPORTED Gross proceed amounts do not reflect net profit and are net of transaction costs (for instance, commissions and fees). The following types of securities transactions are reported to the IRS: Sales Redemptions Tender offers Mergers for cash Maturities Some cash-in-lieu payments Short sales Commercial paper sales Final principal payments on bonds Consent fee payments Liquidation distributions IMPORTANT POINTS Sales are reported according to the trade date. Transactions with a December trade date and a January settlement date are reported the year in which the trade date occurred. Your clients should generally report these transactions on their tax returns for the year during which the trade date occurred. Sales of U.S. Treasury bills and other short-term discount obligations are reported on IRS Form 1099-B. Interest from the maturity of these securities is reported on IRS Form 1099-INT. We report short sales in the year during which the short sales are executed (not the year during which the short sales are covered). If any proceeds were subject to federal tax withholding, the amount withheld is reported in the Federal Income Tax Withheld (Box 4) column. We report this information to the IRS on Form 1099-B. REGULATED FUTURES CONTRACTS (BROAD-BASED INDEX OPTIONS) Regulated futures contracts are reported to the IRS on Form 1099-B. The Profit or (Loss) Realized in 2007 subsection displays contracts settled or closed in Transactions are listed in CUSIP sequence. CUSIPs are displayed below security descriptions. Expiration date and strike price are displayed in the Expiration Date/Strike Price column. The Unrealized Profit or (Loss) on Open Contracts 12/31/2006 subsection provides details of all contracts open at the end of Open contracts are marked to market as of December 31, 2006 to determine unrealized profit or (loss). We report this information to the IRS on Form 1099-B. The Unrealized Profit or (Loss) on Open Contracts 12/31/2007 subsection provides details of contracts open at the end of Open contracts are marked to market as of December 31, 2007 to determine unrealized profit or (loss). We report this information to the IRS on Form 1099-B. The Aggregate Profit or (Loss) equals the Realized Profit or Loss adjusted for the Unrealized Profit or Loss at December 31, 2006 and December 31, Aggregate Profit or Loss is calculated as follows: Profit or (Loss) Realized in 2007 Less: Unrealized Profit or (Loss) on Open Contracts 12/31/2006 Plus: Unrealized Profit of (Loss) on Open Contracts 12/31/

26 IRS FORM 1099-INT INTEREST INCOME The following types of interest income and tax items are reported to the IRS: INTEREST INCOME Interest income from U.S. corporate bonds, taxable municipal bonds, and certain REMIC/CDO interest Interest income from U.S. government agencies (for instance, GNMA and FNMA) Interest income from foreign bonds Credit interest income (total of credit interest earned on cash balances) Interest on short-term discount obligations INTEREST ON U.S. SAVINGS BONDS AND TREASURY OBLIGATIONS U.S. Treasury bill maturities Coupon payments from U.S. Treasury notes and bonds FEDERAL INCOME TAX WITHHELD Federal income tax withheld (backup withholding) is 28% of interest income. This amount is reported to the IRS on Form 1099-INT. FOREIGN TAX PAID Foreign tax withheld (paid) from foreign source interest income that was credited to your clients accounts in TAX-EXEMPT INTEREST Interest on tax-exempt bonds, tax-exempt mutual funds, tax-exempt UITs, and specified private activity bonds. IMPORTANT POINTS Interest income is reported when paid. IRS Form 1099-INT only reflects interest paid in Interest on U.S. savings bonds and Treasury obligations is exempt from state and local taxes. However, each state s tax laws vary; your clients should consult their state taxing authorities or tax professionals. Interest income from U.S. Treasury bills purchased and redeemed through Pershing is reported on IRS Form 1099-INT. If the Treasury bill was not purchased through Pershing, or if the purchase price was not made available to us, we use the rate shown in IRS Publication 1212 (this rate is an estimated amount). Your clients may need to adjust the reported amount in this situation. Accrued interest income received on bonds and notes is reported on a settlement date basis. Amounts representing accrued interest sold are identified with a symbol (*) on your clients statements. Accrued interest purchased between interest payment dates is not included on IRS Form 1099-INT. We report accrued interest purchased in the Securities Purchased section of the tax statement. Your clients may need to adjust interest income for accrued interest purchased. Interest income earned by certain UITs is also reported on Form 1099-INT. If the UIT is organized as a grantor trust and earned interest income, your client s share of the UIT s interest income is reported in this section. Refer to page 26 for additional information on interest reporting for UITs. 24

27 IRS FORM 1099-DIV DIVIDENDS AND DISTRIBUTIONS The following types of dividends and distributions are reported to the IRS: ORDINARY DIVIDENDS From mutual funds, REITs, UITs, and from both U.S. and foreign corporations Paid on money market and bond funds From short-term capital gains paid by federal mutual funds (including tax-exempt mutual funds) QUALIFIED DIVIDENDS This section lists the portion of dividends that are eligible for the new 15% (or 5%) maximum rate. Certain conditions apply for these reduced tax rates. Your client should contact a tax professional for assistance. TOTAL CAPITAL GAIN DISTRIBUTIONS This section lists long-term capital gain distributions paid by mutual funds and REITs. The classification of certain dividend income may be reported as Unrecaptured Section 1250 Gain, Section 1202 Gain, or Collectibles (28%) Gain. The appropriate columns will reflect this income. NONTAXABLE DISTRIBUTIONS This section lists return of capital paid by corporations, mutual funds, UITs, and REITs. LIQUIDATION DISTRIBUTIONS This section lists distribution of cash or securities paid in connection with a corporation s complete or partial liquidation. CASH VALUE OF CERTAIN STOCK DIVIDENDS This section lists the fair market value of the securities paid as a taxable stock dividend. FEDERAL INCOME TAX WITHHELD This section lists federal income tax withheld, which is 28% of dividends and distributions. (Refer to Federal Tax Withholding on page 29 for additional details.) FOREIGN TAX PAID This section lists foreign tax paid, which includes foreign tax withheld from foreign source dividends. IMPORTANT POINTS Dividend income from equities is generally reported when paid. Your clients may receive a revised tax information statement from us if they owned one or more mutual funds, REITs, or UITs. Each year these companies frequently reclassify their distributions for tax purposes based on their year-end calculations. Reclassifications are often announced after initial tax information statements are mailed. If we do not receive income reclassifications, the distributions will be classified as nonqualified dividends. Pershing will include two asterisks (**) beside income listed in the Form 1099-DIV section to indicate that we have not received information from the corresponding investment company, and there is a possibility that the tax information statement will be revised. Spillover distributions paid by mutual funds are reported in the year distributions are declared and are typically paid in January of the following year. IRS FORM 1099-OID ORIGINAL ISSUE DISCOUNT OID DEFINED OID is the difference between the stated redemption price at maturity and the issue price of a bond, debenture, note, or other evidence of indebtedness. REPORTED OID TRANSACTIONS We report OID on corporate bonds, certificate of deposits, CDOs, CMOs, U.S. government obligations, and separate trading of registered interest and principal of securities (STRIPS) obligations. Other periodic interest. IMPORTANT POINTS Your clients may be required to report a portion of this income even though cash payments were not received. Transactions are reported to the IRS on a security-level basis. Your client may be required to recalculate OID if an acquisition premium was paid or if Pershing reported an estimated amount based on IRS Publication We now denote if we used Publication If an OID instrument was transferred during the tax year into an account at Pershing, the OID for the period held at Pershing during 2007 is reported. Your clients should obtain another IRS Form 1099-OID from the prior firm which shows remaining OID portions to be reported. If a company is in Chapter 11 or has declared bankruptcy, Pershing may still be required to report OID income. 25

28 REVISED TAX INFORMATION STATEMENTS As information becomes available to us subsequent to the initial tax information statement mailing, we process this information and provide a revised tax information statement to your clients. Tax information statements may be revised for any of the following reasons: Reclassified income Changed foreign tax withholding Adjusted income paid Canceled trades or as of trades appear on tax statements Updated OID rates (refer to page 25) Changed TIN Typically, reclassifications involve the following categories: Ordinary dividends* Qualified dividends* Capital gain distributions* Unrecaptured Section 1250 Gain* Section 1202 Gain* Collectibles (28%) Gain* Nontaxable distributions* Liquidation distributions* Tax-exempt income from specified private activity bonds Tax-exempt interest * Refer to page 25 UIT REPORTING Income from UITs will be reported based on information from the UIT administrators. This is necessary in order to distinguish the various types of income that a UIT could generate, such as interest income, tax-exempt income, specified private activity bonds, qualified dividend income, nonqualified dividend income, or OID. Your clients who own UITs will see the following information on their tax information statement: INCOME CLASSIFICATION: Income from UITs will be reported in one or more of the Form 1099-DIV, INT, or OID sections of the tax information statement, depending on the nature of the income. ACCRUAL-BASED REPORTING: Income will be reported on the tax information statement as it is earned by the UIT, which may differ from the date the UIT distributes the income. In the 1099-DIV and INT sections, separate entries will be displayed for income that is received in cash and for accrued income. ADDITIONAL DATA: Tax information statements will show Investment Expenses and Foreign Tax Paid as separate categories when the UIT administrator includes this data in the information provided to us. RECLASSIFIED INCOME It may be necessary to reclassify previously reported distributions to another category, since the tax status of payments made by corporations, mutual funds, UITs, and REITs can only be determined after the end of the tax year. Some of these companies may not be able to furnish their classifications before we mail the tax information statements in February. As a result, we will issue revised tax information statements to clients who received distributions from one or more of these companies. 26 Data becomes available after tax information statement distribution, such as: Spillover mutual fund distributions (refer to page 25) CDOs CMOs REMICs OID rates (refer to page 25) WHMTs IMPORTANT POINTS When reclassification information is made available, revised tax information statements are printed to reflect the corrected reporting amounts. The revised tax summary statement precedes the revised tax information statement and details all reclassifications, additions, deletions, and changes. For reclassification information available prior to February 8, 2008, the information is included in the initial tax information statement. All other reclassifications will be processed and mailed based on the calendar schedule on page 22 of this handbook. Please note that the tax information statement revision schedule is subject to change. Pershing may need to revise the revision schedule based on the timing of tax information received from mutual funds and REITs. Foreign tax rates on regulated investment companies foreign source income are generally received after the initial mailing. As this information becomes available, it will be forwarded to your clients. We engage an external vendor to collect income reclassification information for regulated investment companies. By obtaining this information in a timely manner, we can greatly reduce the number of revised tax information statements processed. If you know of companies that reclassify their income after year end, provide us with a copy of the information on the company s letterhead. All reportable accounts holding that position will be updated. Revision information is updated online in TXAS after the revisions are processed and may be accessed using the Tax Report Inquiry function (see page 34 for additional information). Revised tax information statements, including the revised tax summary statement page, are also uploaded to e-document Suite after processing. Copies of individual account holder statements may be obtained from this system (a CD-ROM will be provided later in the year that will contain the final tax information statements, as filed with the IRS). You can access Report Center to view a list of accounts being revised.

29 IRS FORM 1099-MISC MISCELLANEOUS INCOME SUBSTITUTE PAYMENT DEFINED The amounts in this section reflect substitute payments in lieu of dividends or interest credited during These amounts were allocated to an account pursuant to IRS regulations and represent amounts that were credited as a result of a deemed transfer of securities for use in a short sale. Pershing is authorized to loan a client s shares for use in a short sale when the shares are held in a margin account with an outstanding margin debt. Clients should report substitute payments as other income on their tax returns. We report the substitute payment in the Form 1099-MISC section of the tax information statement. ROYALTIES The amounts in this section show income earned from royalty trusts. OTHER INCOME The amounts in this section show other income, such as substitute payment reimbursements. Report this as other income on your tax returns. IMPORTANT POINTS Positions are held in a margin account. The dividend amount originally recorded is reduced by the substitute payment amount. Substitute payments are generally the only reporting that is done for corporations and exempt accounts. Substitute payments are not considered qualified dividends. TRANSACTIONS PERSHING DOES NOT REPORT TO THE IRS We do not report the following categories of information to the IRS: Municipal Original Issue Discount (OID), Nonreportable Distributions, Equity Options Transactions, Margin Interest Expense, and Securities Purchased. These items, however, are displayed on tax information statements to help your clients prepare their tax returns. MUNICIPAL OID Municipal OID subject to Alternative Minimum Tax (AMT) Municipal OID not subject to AMT IMPORTANT POINTS Tax-exempt interest income is reported in the 1099-INT section. Accrued interest received on municipal notes and bonds sold between interest payment dates is reported on a settlement date basis and is included in the tax-exempt interest income category. Amounts representing accrued interest sold are identified with a symbol (*) on your clients statements. It may be necessary to reduce the amount of the tax-exempt interest income category by the amount of accrued interest purchased. If municipal bonds issued with OID were transferred to Pershing during 2007, we only calculate OID for the period during which the instruments were held at Pershing. NONREPORTABLE DISTRIBUTIONS Partnership Cash Distributions Your clients who hold limited partnership interests are sent an IRS Schedule K-1 directly from the partnership even though the position is held in street name at Pershing. Pershing is required by law to provide partner information directly to the partnerships. Your clients should contact the partnership s administrator if they do not receive their IRS Schedule K-1 (K-1 forms are not required to be issued until April 16, 2008). Trust Distributions Trust distributions include payments from publicly traded trusts. IRS Schedule K-1 and Form 1041, which are forwarded to your clients directly from the trust, reflect your clients share of the trust s taxable income or loss. Return of Principal Distributions Generally, return of principal distributions on bonds are not reportable as taxable income, but reduce the tax basis of your client s bond. In certain circumstances, however, a portion of the distributions may be reportable as taxable income. Final principal distributions from a bond are reported in the Form 1099-B section of the tax information statement and are reported to the IRS. EQUITY OPTION TRANSACTIONS Equity option transactions include activities related to sales, purchases, exercises, assignments, and expirations of equity options. We do not report these transactions to the IRS. SECURITIES PURCHASED Securities Purchased includes all security purchases (except options). Securities Purchased includes accrued interest purchased on bonds. MARGIN INTEREST EXPENSE Your clients should refer to their tax professionals or obtain IRS Form 4952 (Investment Interest Expense Deduction) for more information on margin interest expense. 27

30 MINIMUM AMOUNTS TO BE REPORTED AND DUE DATES IRS FORM MINIMUM AMOUNT TO REPORT 2008 DATE DUE TO THE IRS* 2008 DATE DUE TO YOUR CLIENTS* 1099-B All February 28 January DIV $10 or more ($600 or more for liquidations) February 28 January INT $10 or more February 28 January OID $10 or more February 28 January MISC Generally $10 or more February 28 January S All March 17 March All March 17 (for calendar year mutual funds and REITs) 60 days after the mutual fund s or REIT s tax year end CDO, CMO, REMIC, and FASIT Information All March 17 March 17 K-1** (from calendar year partnerships and trusts) All April 15 April 15 * These are original due dates which may, in certain circumstances, be extended to later dates in ** K-1s are issued by the respective partnerships and trusts, not by Pershing. ACCOUNTS EXEMPT FROM TAX REPORTING Accounts are generally subject to IRS Form 1099 tax reporting unless they meet the criteria for exemption. A complete list of the exemption criteria is provided in the Instructions to IRS Form W-9, Request for Taxpayer Identification Number and Certification. The most common types of accounts exempt from IRS Form 1099 tax reporting are: Corporations Qualified retirement plan accounts (including IRAs) Charitable organizations Foreign accounts (provided a valid IRS Form W-8 BEN, W-8 ECI, W-8 EXP, or W-8 IMY is on file) Most federal, state, and local government accounts NOTE: Activity from theses accounts will now be viewable on the 05 TAX REPORT INQUIRY screen. To request a hard copy, you can complete the Request for Tax Information Statements Form on page 21. If you are unsure whether an account is exempt, request that your client furnish a new IRS Form W-9. If the account is exempt, they should mark EXEMPT PAYEE on IRS Form W-9 (according to the instructions) and return the completed, signed, and dated form. See Bulletin # for more information. 28

31 FEDERAL TAX WITHHOLDING (BACKUP WITHHOLDING) BACKUP WITHHOLDING DEFINED Backup withholding is a federal tax that we are required to withhold from certain reportable payments. Backup withholding applies to payments made that are reportable on IRS Forms 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or 1099-OID, and is reported as federal tax withheld in the applicable section of the tax information statement. Backup withholding applies to reportable payments if: Your client fails to provide a valid TIN. Your client fails to certify a TIN on an IRS Form W-9 for accounts opened after December 31, The IRS mandates backup withholding due to an incorrect match between client name and TIN provided. This IRS notification is referred to as a B-Notice. The IRS mandates backup withholding because of underreported interest or dividends on tax returns. This IRS notification is referred to as a C-Notice. CLAIMING BACKUP WITHHOLDING U.S. citizens (and residents for tax purposes) should claim backup withholding as tax payment on their federal income tax returns. Foreign clients may claim backup withholding on IRS Form 1040-NR (U.S. Nonresident Alien Income Tax Return) or IRS Form 1120-F (U.S. Income Tax Return of a Foreign Corporation). Tax-exempt entities and corporations may claim backup withholding on either IRS Form 990-T (Exempt Organization Business Income Tax Return) used by tax-exempt organizations or IRS Form 1120 (U.S. Corporation Income Tax Return). NOTE: The federal backup withholding rate is 28%. STOPPING BACKUP WITHHOLDING REASON FOR WITHHOLDING Client has not provided his or her TIN or has not certified his or her TIN. HOW TO STOP WITHHOLDING Have the client complete IRS Form W-9, Request for Taxpayer Identification Number and Certification, and an individual at your firm should certify the form on Pershing s Documentation, Recording, and Tracking (KUST) system. See Bulletin # for more information. B-Notice Notification from the IRS of name or TIN mismatch. For first-time recipients of a B-Notice: Have the client complete IRS Form W-9 and send it to Pershing. For second-time recipients of a B-Notice: Individual Obtain Letter SSA 7028 from the Social Security Administration and have it sent to Pershing. Account holders who are not individuals Obtain Letter 147C from the IRS and have it sent to Pershing. C-Notice Notification from the IRS stating that we must withhold tax from interest and dividends because the IRS determined that an individual underreported interest and dividends on the tax return. Have the IRS send Pershing a stop letter to discontinue backup withholding. 29

32 COLLATERALIZED DEBT OBLIGATIONS (CDOs), COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs), REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICs), FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS (FASITs), AND WIDELY HELD MORTGAGE TRUSTS (WHMTs) According to federal tax law, income from the above mentioned securities is calculated on an accrual basis, not on a cash basis. We are required to furnish additional information to holders of these securities. Please note the following: Payment information is not included on the initial tax information statement for these securities as detailed in the following tax information statement message to your clients: Our records indicate that you held collateralized debt obligations (CDOs, CMOs, REMICs, FASITs, or WHMTs) during This statement does not include information related to those investments. Upon receipt of information from the issuer, we will promptly forward a revised statement to you. Issuers of collateralized debt obligations are not required to provide us with tax information until after this statement is mailed. Accordingly, you should not file your tax returns until you receive a revised statement from us with the applicable tax information. The following is a list of collateralized debt obligations held during Revised tax information statements are mailed to your clients when information is received from the issuer. We are required by the IRS to report this information to your clients by March 17, For CDOs issued with OID, income is reported in the IRS Form 1099-OID section of the tax information statement. For CDOs issued without OID, income is reported in the IRS Form 1099-INT section of the tax information statement. 30

33 STATE INFORMATION RETURNS In addition to sending information to the IRS, Pershing will also send the following information to the taxing authorities of the following states and Puerto Rico: State Reportable Information Filing Due Date California Non-California municipal bond interest paid to accounts with June 1, 2008 California addresses. Connecticut Non-Connecticut municipal bond interest paid to accounts with June 1, 2008 Connecticut addresses. Massachusetts Proceeds, interest, and dividends paid to accounts with February 28, 2008 Massachusetts addresses. New York Non-New York municipal bond interest paid to accounts with June 1, 2008 New York addresses. Puerto Rico Interest, dividends, proceeds, and partnership distributions February 28, 2008 paid to accounts with Puerto Rico addresses. (Tax statements 480.6A and 480.6B are mailed to your clients.) 480.6B forms are mailed to all accounts with Puerto Rico tax withholding. IRS FORM 1042-S FOREIGN PERSON S U.S. SOURCE INCOME SUBJECT TO WITHHOLDING Federal tax law requires separate reporting of certain transactions when an account holder is a foreign citizen (for instance, non-u.s. citizen). Foreign account holders are generally not subject to IRS Form 1099 information reporting and backup withholding. These account holders are subject to IRS Form 1042-S reporting and nonresident alien withholding. FORM RECIPIENTS Nonresident aliens Foreign partnerships Foreign corporations Foreign estates and trusts TRANSACTIONS REPORTED Interest Dividends Publicly traded partnership distributions Federal taxes withheld IMPORTANT POINTS March 17, 2008 is the due date for mailing IRS Form 1042-S statements. Dividends from money market funds are reported on IRS Form 1042-S. Clients will receive a separate Form 1042-S directly from the money market fund if Pershing did not handle the processing of the fund for the entire year. 31

34 IRS FORM 2439 NOTICE TO SHAREHOLDER OF UNDISTRIBUTED LONG-TERM CAPITAL GAINS Certain regulated investment companies (RICs) elect to pay federal income tax on undistributed long-term capital gains. Your clients who hold positions in these RICs as of the RIC s year end receive IRS Form This form reports a client s shares of undistributed long-term capital gains and the federal tax paid by their RICs. Your clients should include this capital gain in their income, and they are entitled to claim a credit on their income tax returns for their shares of the federal tax paid by the RICs. IMPORTANT POINTS The Depository Trust Company (DTCC) provides us with information for IRS Form 2439 reporting. IRS Form 2439 information is not included on the tax information statement. The date on which IRS Form 2439 is mailed varies depending on the RIC s year end. Pershing LLC claims a tax credit for individual retirement accounts (IRAs) for which Pershing LLC is the custodian. We credit IRAs accordingly. Although we receive the rates used to calculate items on IRS Form 2439 from DTCC, we cannot mail IRS Form 2439 to your clients until we receive copies from DTCC showing the amount of the RIC s long-term capital gain paid to Pershing LLC and the amount of tax paid by the RIC. Some companies or funds typically declare undistributed long-term capital gains. In the example that follows below, the company is expected to provide tax information for 2007 that is reportable on IRS Form Company/Fund CUSIP Company s Tax Ending Date Middleton Doll Co P102 12/31/2007 SAMPLE TAX FORM 32

35 TXAS-TAX REPORTING SYSTEM/TEFRA The Online Tax Information System (TXAS) provides online viewing of reportable tax transactions. The primary features of the system include: Quick retrieval of specific online client tax information statements Access to reclassified information Updated information on reclassification of dividends and capital gains The ability to review updates and confirm that tax information statements were updated and mailed to clients Accessing the TXAS-Tax Reporting System/TEFRA To access the TXAS Main Menu in NetExchange Pro, from the Office Tab, choose OpCenter, then choose TXAS from the Online Applications Menu. TXAS SCREENS OPTION TAX SCREEN DESCRIPTION 01 Tax Rate Inquiry View detailed reclassification information for a specific CUSIP. 02 Tax Rate Browse View a list of all reclassifications displayed in CUSIP order. 03 Print Request Add Request a duplicate copy of a statement. 04 Print Request Browse View a list of all requests for duplicate copies. 05 Tax Report Inquiry View a client s tax information statement. 06 Product/CUSIP Browse View securities on a client s statement by product type or CUSIP. 07 Activity Log Browse View revisions whenever a statement is updated. 08 Puerto Rico Inquiry View tax statement 480.6A and 480.6B reporting to Commonwealth of Puerto Rico. TAX RATE INQUIRY SCREEN To access the Tax Rate Inquiry screen, choose option 1 from the TXAS Main Menu. To view the reclassification rate, type 1 in the RATE TYPE field, and press Enter. To view reclassification information for a specific CUSIP, enter the CUSIP in the CUSIP field, and press Enter. 33

36 TXAS-TAX REPORTING SYSTEM/TEFRA The following information will automatically display: FIELD RUN DATE PRODUCT TYPE PRODUCT TYPE PRODUCT RATE DESCRIPTION Date the reclassification was entered into the TXAS system Original classification Components of the reclassification, which may contain up to three product codes Rate distribution of the reclassification TAX RATE BROWSE SCREEN To access the Tax Rate Browse screen, choose option 2 from the TXAS Main Menu. Type 1 in the RATE TYPE field and press Enter to view a list of reclassified items. The following information will display: FIELD CUSIP FROM DATE RUN DATE PRODUCT FROM TYPE TO PRODUCT RATE DESCRIPTION CUSIP reclassified Effective date of the reclassification Date the reclassification was entered into the TXAS system Original classification Components of the reclassifications which may contain up to three product codes Rate distribution of the reclassification Type I in the S field and press Enter to access the Reclassification Rate Inquiry screen. PRINT REQUEST ADD SCREEN To access the Print Request Add screen, choose option 3 from the TXAS Main Menu. To request a duplicate copy of the tax information statement, type the account number in the ACCOUNT field, then type the following information in the corresponding fields: FIELD TYPE INDICATES MEDIA P Your request will print on paper. SORT A Your request will be sorted in ascending order. DUP/REVISE D You will receive a duplicate reprint. PRINT Y Your request will print in the next print cycle. PRINT REQUEST BROWSE SCREEN To access the Print Request Browse screen, choose option 4 from the TXAS Main Menu. Type 3 in the REPRINT TYPE field and the account number or introducing broker-dealer number (followed by six zeros) in the BROWSE KEY FIELD, and press Enter. TAX REPORT INQUIRY SCREEN To access the Tax Report Inquiry screen, choose option 5 from the TXAS Main Menu. When you first access your clients accounts, the first page of the statement (shown on the following page) is displayed. Use the function keys to scroll through the statement. To view the Supplemental Capital Gain Distribution Information, type 330 in the PROD field, and press Enter. NOTE: FOR INTERNAL USE ONLY is listed at the top of all screens as a reminder to use them for reference only (printouts should not be sent to clients). 34

37 TXAS-TAX REPORTING SYSTEM/TEFRA **** FOR INTERNAL USE ONLY **** TAX INFORMATION REPORT FOR THE PERIOD BEGINNING 01/01/XX (current tax year) AND ENDING 12/31/XX (current tax year) ACCOUNT NUMBER: TAXPAYER IDENTIFICATION NUMBER: LAST REVISION DATE: 10/22/XX JOHN SMITH 123 MAIN STREET BROOKLYN NY SUMMARY TOTALS: GROSS PROCEEDS (LESS COMMISSIONS AND FEES) 92, FEDERAL INCOME TAX WITHHELD (GROSS PROCEEDS) 6, PROFIT OR (LOSS) REALIZED IN 20XX (current tax year) UNREALIZED PROFIT OR (LOSS) ON OPEN CONTRACTS 12/31/XX (previous tax year) (421.38) UNREALIZED PROFIT OR (LOSS) ON OPEN CONTRACTS 12/31/XX (current tax year) 1, AGGREGATE PROFIT OR (LOSS) JANUARY 1 DECEMBER 31, 20XX (current tax year) 1, INTEREST INCOME (PRODUCT CODES 210 THRU 240) 8, INTEREST ON U.S. SAVINGS BOND AND TREASURY OBLIGATIONS 1, ORDINARY DIVIDENDS QUALIFIED DIVIDENDS CAPITAL GAINS DISTRIBUTIONS NONTAXABLE DISTRIBUTIONS FOREIGN TAX PAID (DIVIDENDS AND DISTRIBUTIONS) LIQUIDATION DISTRIBUTIONS CASH TOTAL ORIGINAL ISSUE DISCOUNT FOR 20XX (current tax year) ORIGINAL ISSUE DISCOUNT FOR 20XX (NON-U.S. TREASURY OBLIGATIONS) (current tax year) ORIGINAL ISSUE DISCOUNT (U.S. TREASURY OBLIGATIONS) OTHER PERIODIC INTEREST SUBSTITUTE PAYMENTS IN LIEU OF DIVIDENDS OR INTEREST ROYALTIES OTHER INCOME TAX-EXEMPT SPECIFIED PRIVATE ACTIVITY BOND INTEREST TAX-EXEMPT INTEREST 1, MUNICIPAL ORIGINAL ISSUE DISCOUNT SUBJECT TO AMT MUNICIPAL ORIGINAL ISSUE DISCOUNT NOT SUBJECT TO AMT PARTNERSHIP CASH DISTRIBUTIONS TRUST DISTRIBUTIONS RETURN OF PRINCIPAL DISTRIBUTIONS EQUITY OPTION PROCEEDS AND EXPIRATIONS 6, NET COST OF SECURITIES PURCHASED 206, ACCRUED INTEREST PURCHASED U.S. CORPORATIONS ACCRUED INTEREST PURCHASED U.S. GOVERNMENT AGENCIES ACCRUED INTEREST PURCHASED FOREIGN SOURCES ACCRUED INTEREST PURCHASED U.S. GOVERNMENT TAX-EXEMPT SPECIFIED PRIVATE ACTIVITY BOND INTEREST TAX-EXEMPT INTEREST PROCEEDS FROM BROKER AND BARTER EXCHANGE TRANSACTIONS TRADE/PROCESS DESCRIPTION CUSIP DATE QUANTITY PROCEEDS FEDERAL TAX ALCIDE CORP /05/20XX 1, NEW **ADDED** SHORT SALE **UPDATED** 09/04/20XX 500 5,

38 TXAS-TAX REPORTING SYSTEM/TEFRA PRODUCT/CUSIP BROWSE SCREEN To access the Product/CUSIP Browse screen and view a list of transactions by product type, CUSIP, or both, choose option 6 from the TXAS Main Menu. To view these items on the tax information statement, type S in the S field, and press Enter. ACTIVITY LOG BROWSE SCREEN To access the Activity Log Screen, choose option 7 from the TXAS Main Menu. To view statement revisions, enter the account number/introducing broker-dealer number in the ACCOUNT field, and press Enter. To further refine your search, type the investment professional s (IP) number in the IP field, the activity date in the ACTIVITY DATE field, or the CUSIP in the CUSIP# field, and press Enter. To view any information that changed on a statement, type S in the SEL field, and press Enter. PUERTO RICO INQUIRY SCREEN To Access the Puerto Rico Inquiry Screen, choose option 8 from the TXAS Main Menu. When you first access your clients accounts, the first page of the statement is displayed. Use the function keys to scroll through the statement. PRODUCT CODES There are both general and specific product codes. Type the general product code (for instance, 200, 300, 400) in the PRODUCT TYPE field of an applicable TXAS screen to view related tax information, and press Enter. Type a specific product code (for instance, 230, 240, 250) in the PRODUCT TYPE field to view tax information related to a particular reportable or nonreportable income item, and press Enter. NOTE: Typing a general product code (200) allows you to view the specific product codes (210, 220, 230, 240, and 250) without retyping each product code. Refer to the following tables for a list of product codes for reportable and nonreportable income. REPORTABLE INCOME PRODUCT CODE Gross proceeds 1099-B 100 Gross proceeds (less commissions and fees) 110 Unrealized profit or loss on open contracts 20XX (previous tax year) 120 Profit or loss realized 20XX (current tax year) 130 Unrealized profit or loss on open contracts 20XX (current tax year) 140 Interest 1099-INT 200 Interest income (U.S. corporations and other) 210 Interest income (U.S. government agencies) 220 Interest income (foreign source) 230 Interest income (credit interest) 240 Government interest income 250 Dividends 1099-DIV 300 Ordinary dividends (U.S. corporations) 310 Qualified dividends (U.S. corporations) 315 Ordinary dividends (foreign corporations) 320 Qualified dividends (foreign corporations) 325 Capital gain distributions 330 Nontaxable distributions 340 Liquidation distributions 350 Original issue discount 1099-OID 400 Original issue discount (non-u.s. Treasury obligations) 410 Original issue discount (U.S. Treasury obligations)

39 TXAS-TAX REPORTING SYSTEM/TEFRA REPORTABLE INCOME (CONTINUED) PRODUCT CODE Other periodic interest 430 Substitute payments in lieu of dividends or interest 1099-MISC 490 Royalties 1099-MISC 492 Other income 1099-MISC 494 Tax-exempt interest income 500 Tax-exempt-specified private bond interest 510 Tax-exempt interest 515 NONREPORTABLE INCOME PRODUCT CODE Municipal original issue discount (not subject to AMT) 522 Partnership cash distributions 525 Return of principal distributions 530 Trust distributions 535 Equity option transactions 540 Accrued interest purchased 600 Accrued interest purchased (U.S. corporations) 610 Accrued interest purchased (U.S. government agencies) 615 Accrued interest purchased (foreign source) 620 Accrued interest purchased (U.S. government bonds and notes) 625 Accrued interest purchased (tax-exempt-specified private bond interest) 630 Accrued interest purchased (tax-exempt interest) 635 Margin interest expense 690 Securities purchased and accrued interest purchased 700 Securities purchased 710 Collateralized debt obligations (CDOs)/real estate mortgage investment conduits (REMICs) 800 CDOs/REMICs (description only) 810 CDOs/REMICs 820 TAX STATEMENT CORRECTIONS TXAS allows you to view your clients tax information statements online. If you have a correction, you must submit the proper documentation to Pershing. We will verify the information upon receipt and post any corrections online; corrections can be viewed online immediately. Once corrected, the word ADDED, UPDATED, or DELETED will appear next to each item. Also, a new statement will be printed and mailed to your client. When the revised tax information statement is printed, the online statement will display the most recent revision date under the LAST REVISION DATE field. ADDITIONAL INFORMATION If you have any questions about TXAS, please call Pershing s Tax Reporting Help Desk at (800) or (201) for calls originating outside of the United States or send a fax to (201) NOTE: Pershing is not authorized to offer tax advice. 37

40 RETIREMENT PRODUCT TAX INFORMATION WHAT S NEW FOR 2007 FOR RETIREMENT PRODUCTS SUBSTITUTE IRS FORMS 1099-R, 1099-Q, 5498 AND 5498-ESA Pershing has created substitute Forms 1099-R and 1099-Q for use for tax year 2007 reporting and forward. Pershing created substitute Forms 5498 and 5498-ESA for use for tax year 2006 reporting and forward. The forms were developed in accordance with IRS Publication 1179: General Rules and Specifications for Substitute Forms. The forms were designed to emulate Pershing s substitute Form 1099 and Pershing s award-winning statement. The Pershing substitute Form 1099-R will be a three-page document. Recipient Copy C will be on the front of page 1 and the IRS instructions will be on the back of the page. Copy B will be on the front of page 2 and Copy 2 will be on the front of page 3. The Pershing substitute Form 1099-Q will be a one-page document with recipient Copy B on the front of the page and the IRS instructions on the back. Samples of the forms are provided later in this section. Going forward corrected forms for the previous year will be generated using the newly designed forms. For corrections to tax years earlier than the prior year the standard IRS form will be used. For more information on the correction process see the pages later in this section. MULTIPLE 1099-R FORMS FOR AN ACCOUNT Pershing will no longer send multiple forms for an account with multiple transaction types if the transactions result in the same 1099-R distribution code. For example, if a Traditional IRA account holder is 60 years old and takes a normal distribution in 2007 for $5,000 and then does a Roth conversion later in the same year valued at $50,000 there will be one 1099-R sent for $55,000. The distribution code in Box 7 of Form 1099-R, for this example, will be a 7. We will continue to send multiple forms for an account if transactions result in different distribution codes (per IRS instructions) or if more than one state of residence is associated with distribution activity for the same code. Please see pages 43 and 44 for a complete list of Form 1099-R distribution codes. PPA ON POINT A provision of the Pension Protection Act (PPA) of 2006 allows for a direct rollover by a nonspouse from a qualified retirement plan to an inherited IRA. This provision was effective January 1, PPA also included provisions for bankruptcy catch-up contributions and qualified reservist recontributions. Per IRS instructions these amounts are to be reported in the blank box to the left of Box 10 on the IRS Form As noted, Pershing has created a substitute Form 5498 and will accommodate this change on the 2007 form. PPA contained certain provisions not effective until 2008 or later. One provision allows for the direct rollover from qualified retirement plans to Roth IRAs for eligible participants beginning January 1, For more information on these and other provisions of the PPA, please refer to the PPA on Point link in The Retirement Products Suite of The Source in NetExchange Pro. NEW HANDBOOK SECTIONS Sections have been added to the handbook this year to provide information regarding Foreign Distribution Withholding and requirements related to IRS 1099-R Name/TIN Mismatch Notices. Refer to the related sections for more details on these topics. 38

41 RETIREMENT PRODUCT TAX INFORMATION GENERAL INFORMATION PAYER Pershing LLC is the payer of income reported on IRS Forms R and 1099-Q for those custodians participating in the Combined State and Federal Tax Withholding program. PAYER S TAXPAYER IDENTIFICATION NUMBER (TIN) Pershing s TIN for 1099-R and 1099-Q reporting is Pershing s TIN for 5498 and 5498-ESA reporting is NOTE: For 5498 and 5498-ESA reporting, if your client has a custodian other than Pershing, that custodian s TIN will be used for reporting. MINIMUM DISTRIBUTION AMOUNTS In accordance with regulatory requirements, Pershing will issue Form 1099-R to report all distributions of $10 or more from individual retirement accounts, qualified plans, and 403(b) accounts to the IRS and your clients. NEW CLIENTS The tax forms will include tax reporting activity for the 2007 tax year. If your firm joined Pershing after January 1, 2007, your clients may receive tax forms from Pershing and the previous payer. Questions regarding tax forms should be directed to the appropriate payer. QUALIFIED RETIREMENT PLAN (QRP) QRP omnibus accounts pool assets for multiple employees of the same employer. Generally, these accounts bear the name and TIN of the employer. Pershing does not issue IRS Form 1099-R to participants for distributions that occur from omnibus accounts. Instead, these forms are issued by the plan trustee(s). FAIR MARKET VALUE (FMV) IRA owners will receive their December 31, 2007 FMV report as part of their January 2008 account statement. RETIREMENT PRODUCT INFORMATION You can research your clients tax-related inquiries by using our Individual Retirement Account System (IRAS). IRAS provides online viewing of reportable and certain nonreportable transactions, at both summary and detail levels, in retirement accounts for which Pershing LLC acts as custodian or servicing agent. CD-ROM Tax forms for the 2007 tax year will be available on SelectView CD-ROMs, using the same Digital Xpress Reports (DXR) technology as our statements and confirmations. IRS Forms R and 1099-Q for 2007 will be available beginning February 2008, and IRS Forms 5498 and 5498-ESA will be available beginning June These CD-ROMs will be sorted and distributed to your firm and will include all office ranges. The CD-ROM provides access to tax reporting forms for your clients accounts, and allows you to search and print the forms by using your client s Social Security Number, account number, office range, and investment professional number (RR). The tax CD-ROM passwords are the same passwords your firm used for your brokerage account statements and trade confirmations. There is no longer a separate password matrix. E-DOCUMENT SUITE Copies of original and corrected IRS Forms 1099-R, 1099-Q, 5498, and 5498-ESA are available online via e-document Suite in NetExchange Pro. REPORT CENTER Reports will be available on Report Center which include the information that will be reported on Forms 1099-R (Report ID: IRA894R0), 1099-Q (Report ID: IRA893R0), 5498 (Report ID: IRA925R0), and 5498-ESA (Report ID: IRA924R0). A calendar is provided on page 40 which provides the target dates for when these reports will be made available. Pershing will send a notification when the reports are accessible. COVERDELL EDUCATION SAVINGS ACCOUNTS (ESA) REPORTING Coverdell ESA contributions will be reported on Form 5498-ESA, Coverdell ESA Contribution Information. Coverdell ESA distributions will be reported on IRS Form 1099-Q, Payments from Qualified Education Programs (under Sections 529 and 530). Direct transfers into a Coverdell ESA will be reported in Box 2 (Rollover Contributions) of IRS Form 5498-ESA. The transfer amounts will be included with any rollover contributions. Direct transfers have historically been nonreportable. As a result, the amount reported in Box 2 may be different than the rollover contribution amount reported on the brokerage account statement or in IRAS. Form 5498-ESA will be mailed to clients by May 31, 2008 instead of April 30, as a result of Pershing filing for an extension with the IRS. The additional time is needed to accommodate contributions for 2007 that can be made as late as April 15, WHO TO CONTACT Please contact the Customer Service Group or your tax professional with questions about tax reporting issues related to retirement products. A list of Frequently Asked Questions regarding tax forms is available via The Source in NetExchangePro and on pages 60 and 61. Pershing is not qualified to offer tax advice. 39

42 RETIREMENT PRODUCT TAX INFORMATION TAX REPORTING CALENDAR 6 SUNDAY MONDAY TUESDAY 1 December 31 Final Day for 2007 Distributions JANUARY 2008 WEDNESDAY 2 9 THURSDAY 3 10 FRIDAY 4 11 SATURDAY SUNDAY 4 MONDAY 5 FEBRUARY 2008 TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY 2 9 Commence With Corrected IRS Forms 1099-R and 1099-Q Mailings to Your Clients and Posted to E-Document Suite Daily Until April 30 and Then Weekly Through December IRS Forms 1099-R and 1099-Q Reports Available to Your Firm Via Report Center Completion of IRS Forms 1099-R and 1099-Q CD-ROM Mailing to Your Firm IRS Forms 1099-R and 1099-Q Mailed to Your Clients and Posted to e-document Suite IRS Forms 1099-R and 1099-Q Due 2 SUNDAY MONDAY TUESDAY MAY 2008 WEDNESDAY THURSDAY 1 2 FRIDAY SATURDAY 3 SUNDAY 1 MONDAY 2 TUESDAY 3 JUNE 2008 WEDNESDAY 4 THURSDAY 5 6 FRIDAY SATURDAY Commence With Corrected IRS Forms 5498 and 5498-ESA Mailing to Your Clients and Posted to E-Document Suite Weekly Through December IRS Forms 5498 and 5498-ESA Reports Available to Your Firm Via Report Center IRS Forms 5498 and 5498-ESA Forms Mailed to Your Clients and Posted to e-document Suite IRS Forms 5498 and 5498-ESA Due Completion of IRS Forms 5498 and 5498-ESA CD-ROM Mailing to Your Firm 1 Withholding adjustment will not be processed in 2008 for 2007 distributions. 2 IRS Forms 1099-R, 1099-Q, 5498, and 5498-ESA are due to the IRS. We typically request an extension of time to file with the IRS to ensure that all corrected data is submitted to the IRS. 40

43 RETIREMENT PRODUCT TAX INFORMATION FORM 1099-R COPY C WITH INSTRUCTIONS SAMPLE TAX FORM NOTE: For corrected forms Corrected as of MM/DD/YYYY will be displayed in the upper right-corner of the form, directly below 2007 Retirement Account Tax Information Statement. The date will be the day the process was run to generate the corrected form. The following additional note will appear at the bottom of the note section: This form contains revised information to correct reporting previously provided for your account for tax year SAMPLE INSTRUCTIONS 41

44 RETIREMENT PRODUCT TAX INFORMATION FORM 1099-R COPY B AND COPY 2 SAMPLE TAX FORM SAMPLE TAX FORM 42

45 RETIREMENT PRODUCT TAX INFORMATION GUIDE TO FORM 1099-R DISTRIBUTION CODES Internal Revenue Service 43

46 RETIREMENT PRODUCT TAX INFORMATION GUIDE TO FORM 1099-R DISTRIBUTION CODES (CONTINUED) Internal Revenue Service 44

47 RETIREMENT PRODUCT TAX INFORMATION FORM 1099-Q SAMPLE TAX FORM NOTE: For corrected forms Corrected as of MM/DD/YYYY will be displayed in the upper-right corner of the form, directly below 2007 Retirement Account Tax Information Statement. The date will be the day the process was run to generate the corrected form. The following additional note will appear at the bottom of the note section: This form contains revised information to correct reporting previously provided for your account for tax year SAMPLE INSTRUCTIONS 45

48 RETIREMENT PRODUCT TAX INFORMATION CORRECTING TAX INFORMATION FOR FORM 1099-R AND FORM 1099-Q 1. The 1099-R Tax Correction Request Form is used for all Form 1099-R correction requests (refer to page 47). 2. The 1099-Q Tax Correction Request Form is used for all Coverdell ESA correction requests on Form 1099-Q (refer to page 48). 3. If your client s account moved from a Coverdell ESA (reported on Form 1099-Q) to another plan type, you will need to complete both correction forms to properly process this request. 4. Correction requests should include a copy of your client s brokerage account statement or a NetExchange Pro History screen printout with errors clearly highlighted. If the correction involves an account name or TIN, enclose a copy of the executed Adoption Agreement after the account has been updated. 5. We may need to speak with you about these corrections, so please provide a contact name, telephone number, and signature with the appropriate paperwork. 6. Duplicate copies of Forms 1099-R and 1099-Q can be found in NetExchange Pro. For original 2007 forms mailed by January 31, 2008, go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. Pershing provides for the correction of tax forms for the immediately preceding three tax years. Corrected forms for tax year 2007 will be generated in the format of the Pershing substitute form. These forms will be available in e-document Suite, as noted for the original forms. Corrections to forms for 2006 and 2005 tax years will be produced using the standard IRS form. To obtain copies of these forms go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. 7. Fax or send correction requests to: Pershing LLC Attention: Retirement Products Department One Pershing Plaza, 11th Floor Jersey City, New Jersey Toll-Free Fax Number: (866) Direct Fax Number: (201) (for calls originating outside of the United States) Requests for corrections are reviewed upon receipt, and are approved once we receive the necessary documentation. Correction requests for Forms 1099-R and 1099-Q should be submitted on the appropriate tax correction form, accompanied by supporting documentation. A reject Service Center notification will be sent within 48 hours of a correction request being received if the request is not in proper order. A corrected Form 1099-R or 1099-Q will be mailed to your client within five business days after an adjustment is made to the account (generated and mailed daily from February 4 to April 30 and weekly from May 1 to December 31), as appropriate. Corrected forms will be available in e-document Suite on the day the form is mailed to the account holder or in Online Documents, as previously noted. If you need help or have questions about Forms 1099-R or 1099-Q tax corrections, or would like to obtain the status of a correction request, please call the Customer Service Group. 46

49 RETIREMENT PRODUCT TAX INFORMATION 1099-R TAX CORRECTION REQUEST Fax the completed form to Pershing s Retirement Products Department. Toll-Free Fax Number (866) Direct Fax Number (201) (for calls originating outside of the United States) PLEASE PRINT OR TYPE ALL INFORMATION: DATE: REQUESTED BY: REQUESTER S TELEPHONE: ACCOUNT NUMBER: FIRM NAME: NUMBER OF PAGES: PLEASE ISSUE A CORRECTED IRS FORM 1099-R FOR THE FOLLOWING CATEGORY: DISTRIBUTIONS 1099-R INFORMATION REQUESTED CORRECTION Early distributions, no known exceptions Early distributions exception applies (substantially equal series or Roth conversions under the age of 59 1 / 2) Disability Death Normal (includes Roth conversions over the age of 59 1 / 2) Excess contributions plus earnings taxable in 2nd prior year (For Tax Year: ) (qualified plans only) Excess contributions plus earnings taxable in prior year removed by filing deadline (For Tax Year: ) Excess contributions plus earnings taxable in current year removed by filing deadline (For Tax Year: ) Excess contributions removed after filing deadline Direct rollover to an IRA/QRP Early distribution from a Roth IRA, no known exceptions Roth IRA distribution, exception applies Loans treated as deemed distributions Loans treated as offset Recharacterized IRA contributions for prior year (For Tax Year: ) Recharacterized IRA contributions for current year (For Tax Year: ) Early distributions from a SIMPLE IRA in the first two years, no known exception Taxpayer Identification Number Federal taxes withheld (no adjustments to amounts after 12/31 of the withholding year) State taxes withheld (no adjustments to amounts after 12/31 of the withholding year) State of residence adjustment Client name (client name adjustment) THE FOLLOWING DOCUMENTS ARE ENCLOSED WITH ERROR(S) CLEARLY HIGHLIGHTED: TAX INFORMATION STATEMENT/REPORT NETEXCHANGE PRO SCREEN PRINTOUT REASON FOR CORRECTION: BROKERAGE ACCOUNT STATEMENT OTHER SIGNATURE: NOTE: Duplicate copies of Form 1099-R can be found in NetExchange Pro. For original forms mailed by January 31 each year and for the corrections related to that tax year go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. For corrected or new original forms done for a year other than the immediately preceding year, go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. 47 FRM-1099-R-COR-1-07

50 RETIREMENT PRODUCT TAX INFORMATION 1099-Q TAX CORRECTION REQUEST Fax the completed form to Pershing s Retirement Products Department. Toll-Free Fax Number (866) Direct Fax Number (201) (for calls originating outside of the United States) PLEASE PRINT OR TYPE ALL INFORMATION: DATE: REQUESTED BY: REQUESTER S TELEPHONE: ACCOUNT NUMBER: FIRM NAME: NUMBER OF PAGES: PLEASE ISSUE A CORRECTED IRS FORM 1099-Q FOR THE FOLLOWING CATEGORY: DISTRIBUTIONS 1099-Q INFORMATION REQUESTED CORRECTION Gross distribution amount (Distribution Code 1) Excess contributions plus earnings taxable in 2007 (Distribution Code 2) Excess contributions plus earnings taxable in 2006 (Distribution Code 3) Fair Market Value (FMV) (Distribution Code 4) Death (Distribution Code 5) Recipient s Social Security Number Client name (client name adjustment) THE FOLLOWING DOCUMENTS ARE ENCLOSED WITH ERROR(S) CLEARLY HIGHLIGHTED: TAX INFORMATION STATEMENT/REPORT NETEXCHANGE PRO SCREEN PRINTOUT REASON FOR CORRECTION: BROKERAGE ACCOUNT STATEMENT OTHER SIGNATURE: NOTE: Duplicate copies of Form 1099-Q can be found in NetExchange Pro. For original forms mailed by January 31 each year and for the corrections related to that tax year, go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. For corrected or new original forms done for a year other than the immediately preceding year, go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. IRA1099Q 48 FRM-1099-Q-COR-1-07

51 RETIREMENT PRODUCT TAX INFORMATION FORM 5498 SAMPLE TAX FORM NOTE: For corrected forms Corrected as of MM/DD/YYYY will be displayed in the upper-right corner of the form, directly below 2007 Retirement Account Tax Information Statement. The date will be the day the process was run to generate the corrected form. The following additional note will appear at the bottom of the note section: This form contains revised information to correct reporting previously provided for your account for tax year SAMPLE INSTRUCTIONS 49

52 RETIREMENT PRODUCT TAX INFORMATION FORM 5498-ESA SAMPLE TAX FORM NOTE: For corrected forms Corrected as of MM/DD/YYYY will be displayed in the upper-right corner of the form, directly below 2007 Retirement Account Tax Information Statement. The date will be the day the process was run to generate the corrected form. The following additional note will appear at the bottom of the note section: This form contains revised information to correct reporting previously provided for your account for tax year SAMPLE INSTRUCTIONS 50

53 RETIREMENT PRODUCT TAX INFORMATION CORRECTING TAX INFORMATION FOR FORM 5498 AND FORM 5498-ESA 1. The 5498 Tax Correction Request Form is used for all Form 5498 correction requests (refer to page 52). NOTE: For contribution adjustments to qualified retirement plans, send a Service Center request to the Customer Service Technical Advisor Group (TAG). Requests should be directed to Retirements Processing, Contributions, Check Contributions Adjustments. 2. The 5498-ESA Tax Correction Request Form is used for all Form 5498-ESA correction requests (refer to page 53). 3. Correction requests should include a copy of your client s brokerage account statement or a NetExchange Pro screen printout with the error(s) clearly highlighted. If the correction involves an account name or TIN, enclose a copy of the executed Adoption Agreement after the account has been updated. 4. We may need to speak with you about these corrections, so please provide a contact name, telephone number, and signature with the appropriate paperwork. 5. Duplicate copies of Forms 5498 and 5498-ESA can be found in NetExchange Pro. For original 2007 forms mailed by May 31, 2008 go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. Pershing provides for the correction of tax forms for the immediately preceding three tax years. Corrected forms for tax year 2007 will be generated in the format of the Pershing substitute form. These forms will be available in e-document Suite, as noted for the original forms. Corrections to forms for 2006 and 2005 tax years will be produced using the standard IRS form. To obtain copies of these forms go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. 6. Fax or send correction requests to: Pershing LLC Attention: Retirement Products Department One Pershing Plaza, 11th Floor Jersey City, New Jersey Toll-Free: (866) Direct Fax Number: (201) (for calls originating outside the United States) Requests for corrections are reviewed upon receipt and are approved once we have received the necessary documentation. Correction requests for Forms 5498 and 5498-ESA should be submitted on the appropriate tax correction form, accompanied by supporting documentation. A reject Service Center notification will be sent within 48 hours of a correction request being received if the request is not in proper order. A corrected Form 5498 or 5498-ESA will be mailed to your client within five business days after an adjustment is made to an account, as appropriate. Corrected forms will be available in e-document Suite on the day the form is mailed to the account holder or in Online Documents, as previously noted. If you need help or have questions about Forms 5498 or 5498-ESA tax corrections, please call the Customer Service Group. 51

54 RETIREMENT PRODUCT TAX INFORMATION 5498 TAX CORRECTION REQUEST Fax the completed form to Pershing s Retirement Products Department. Toll-Free Fax Number (866) Direct Fax Number (201) (for calls originating outside of the United States) PLEASE PRINT OR TYPE ALL INFORMATION: DATE: REQUESTED BY: REQUESTER S TELEPHONE: ACCOUNT NUMBER: FIRM NAME: NUMBER OF PAGES: PLEASE ISSUE A CORRECTED IRS FORM 5498 FOR THE FOLLOWING CATEGORY: CONTRIBUTIONS FORM 5498 INFORMATION REQUESTED CORRECTION IRA (Box 1) Rollover (Box 2) Roth conversion (Box 3) Recharacterization (Box 4) SEP (Box 8) SIMPLE (Box 9) Roth IRA (Box 10) Blank Box Fair market value as of 12/31 (For Tax Year: ) Participant s Social Security Number CLIENT INFORMATION CLIENT NAME: TAXPAYER IDENTIFICATION NUMBER: THE FOLLOWING DOCUMENTS ARE ENCLOSED WITH ERROR(S) CLEARLY HIGHLIGHTED: TAX INFORMATION STATEMENT/REPORT NETEXCHANGE PRO SCREEN PRINTOUT REASON FOR CORRECTION: BROKERAGE ACCOUNT STATEMENT OTHER SIGNATURE: NOTE: Duplicate copies of Form 5498 can be found in NetExchange Pro. For original forms mailed by May 31 each year and for the corrections related to that tax year, go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. For corrected or new original forms done for a year other than the immediately preceding year, go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. 52 FRM-5498-COR-1-07

55 RETIREMENT PRODUCT TAX INFORMATION 5498 ESA TAX CORRECTION REQUEST Fax the completed form to Pershing s Retirement Products Department. Toll-Free Fax Number (866) Direct Fax Number (201) (for calls originating outside of the United States) PLEASE PRINT OR TYPE ALL INFORMATION: DATE: REQUESTED BY: REQUESTER S TELEPHONE: ACCOUNT NUMBER: FIRM NAME: NUMBER OF PAGES: PLEASE ISSUE A CORRECTED IRS FORM 5498-ESA FOR THE FOLLOWING CATEGORY: CONTRIBUTIONS FORM 5498-ESA INFORMATION REQUESTED CORRECTION Coverdell Education Savings Account (ESA) (Box 1) Rollover (Box 2, includes transfers) Beneficiary s Social Security Number CLIENT INFORMATION CLIENT NAME: TAXPAYER IDENTIFICATION NUMBER: THE FOLLOWING DOCUMENTS ARE ENCLOSED WITH ERROR(S) CLEARLY HIGHLIGHTED: TAX INFORMATION STATEMENT/REPORT NETEXCHANGE PRO SCREEN PRINTOUT REASON FOR CORRECTION: BROKERAGE ACCOUNT STATEMENT OTHER SIGNATURE: NOTE: Duplicate copies of Form 5498-ESA can be found in NetExchange Pro. For original forms mailed by May 31 each year and for the corrections related to that tax year, go to Tax Year-End Documents in e-document Suite and enter the account number and tax year and select the tax statement type. For corrected or new original forms done for a year other than the immediately preceding year, go to Online Documents and enter the account number to locate the imaged form. If you are unable to locate or print a form, please contact Pershing s Credit Services Customer Service Team at (888) and select the option for retirement accounts. IRA5498E 53 FRM-5498-ESA-COR-1-07

56 RETIREMENT PRODUCT TAX INFORMATION FORM 1099-R NAME/TIN MISMATCH NOTICES IRS NOTIFICATION The IRS notifies Pershing when a name/tin combination on our 1099-Rs does not match the records of the Social Security Administration or the Internal Revenue Service. This notification is typically received in September or October each year and pertains to forms filed for the tax year two years prior to the year of notification. For example, the notification received in 2007 was related to 1099-R forms for tax year W-9 MAILING Pershing is required to solicit W-9 forms directly from the appropriate end-clients for the accounts identified in the notification. Solicitations include a letter explaining the mismatch, what actions the account owner should take, a pre-printed substitute Form W-9, and a return envelope. The 1st B-Notice Notification date field in Account Services is populated with the W-9 mailing date. The following report is made available in Report Center in NetExchange Pro at least two weeks prior to the client mailing: 1099-R Name/TIN Mismatches for Tax Year 20XX (Report ID: IRA110R0). MANDATORY WITHHOLDING REQUIREMENT If the end-client does not respond to the TIN solicitation within the prescribed time frame (45 calendar days from the mailing date), Pershing is required to withhold a minimum of 10% federal taxes (and applicable state taxes) from distributions. On the first business day after the deadline for receipt of the W-9, a 1st B-Notice enforced date is placed on all accounts involved in the mailing for which a W-9 is not returned. The B-Notice fields are used in Pershing s system. Pershing follows IRS Reasonable Cause procedures as outlined in IRS Publication 1586 and the process is very similar to that required for B-Notices. While distributions from retirement plans generally are not subject to backup withholding, the B-Notice field is utilized to signify and trigger the mandatory federal (and appropriate state) tax withholding requirement for the account. Pershing Automatic Cash Exchange (PACE) System holds are placed on the accounts as is the following notebook message, for example: IRS B NOTICE DATE INCORRECT NAME/TIN MINIMUM 10% FED TAX W/H REQD. If an account has a standing periodic distribution instruction, Pershing will update the withholding election to at least 10%, as required. Once updated, per IRS regulations, a new instruction must be supplied to change the withholding election. If an account holder returns the W-9 after the B-Notice has been added to the account, then the B-Notice satisfied field will be populated and the mandatory withholding requirement will be lifted from the account. The PACE hold on the account will be removed and the following notebook message will be added: W-9 RECEIVED MIN W/H REQUIREMENT REMOVED. FOREIGN DISTRIBUTION TAX TREATMENT FOREIGN DISTRIBUTIONS: DEFINITION AND BASIC CONDITIONS A foreign distribution, for these purposes, is defined as follows: Taxable amounts distributed from a retirement account that are disbursed either outside of the United States or within the U.S. to a nonresident alien. There are specific requirements regarding tax treatment for foreign distributions. There are three basic conditions: 1. If funds are distributed outside of the U.S. to a U.S. citizen or resident alien of the U.S. then a minimum of 10% federal tax must be withheld from the gross distribution amount. 2. If funds are distributed to a nonresident alien and the account is NOT documented with a W-8BEN then a minimum of 30% NRA tax must be withheld from the gross distribution amount. 3. If funds are distributed to a nonresident alien and the account IS documented with a W-8BEN then a minimum of 30% NRA tax, or a reduced rate based upon claimed treaty benefits, must be withheld from the gross distribution amount. FOREIGN DISTRIBUTION TAX TREATMENT GRIDS In order to provide a more specific understanding of how Pershing will determine tax for foreign distributions please refer to the two grids on the next page. Grid #1 details how Pershing handles Documented Accounts, accounts with a valid form W-8BEN or W-9 on file. Grid #2 details how Pershing handles Undocumented Accounts. Absent a form, IRS presumption rules (as provided in IRC (b)(3)(iii)(C)) are followed to determine tax treatment. Each grid has three lines, one for each possible tax treatment scenario. Below each grid is a written description of each scenario in that grid. 54

57 RETIREMENT PRODUCT TAX INFORMATION FOREIGN DISTRIBUTION TAX TREATMENT GRIDS GRID #1 W-8BEN on File Treaty Benefits Claimed W-9 on File Documented Account: Valid Form W-8BEN or W-9 on File Social Security Number Zero Treaty Country Tax Type Req d Min. W/H Tax Form #1 Yes No No N/A N/A NRA 30% 1042-S #2 Yes Yes No N/A N/A NRA Treaty Rate 1042-S #3 No N/A Yes N/A N/A FED 10% 1099-R Documented Account Scenario #1 (Foreign Citizen, Nonresident Alien): A foreign distribution is taken and a valid W-8BEN form IS on file. Treaty benefits ARE NOT claimed on the form and a W-9 form IS NOT on file. Whether there is a Social Security Number on record for the account or if the foreign address is in a zero treaty country (as defined on page 56) is not applicable to the determination of tax treatment. NRA tax will be withheld from the distribution at a rate of 30% of the gross distribution amount. IRS form 1042-S will be mailed to recipients (as noted on page 56) and transmitted to the IRS to report the activity for the year. Documented Account Scenario #2 (Foreign Citizen, Nonresident Alien): A foreign distribution is taken and a valid W-8BEN form IS on file. Treaty benefits ARE claimed on the form and a W-9 form IS NOT on file. Whether there is a Social Security Number on record for the account or if the foreign address is in a zero treaty country (as defined on page 56) is not applicable to the determination of tax treatment. NRA tax will be withheld from the distribution at the treaty rate of the gross distribution amount (see the country lists on page 56). IRS Form 1042-S will be mailed to recipients (as noted on page 56) and transmitted to the IRS to report the activity for the year. Documented Account Scenario #3 (U.S. citizen or Resident Alien): A foreign distribution is taken and a valid W-8BEN form IS NOT on file. Since there is no W-8BEN form on file the claim of treaty benefits is not applicable to the determination of tax treatment. A W-9 form IS on file for the account. Whether there is a Social Security Number on record for the account or if the foreign address is in a zero treaty country (as defined on page 56) is not applicable to the determination of tax treatment. Federal tax will be withheld from the distribution at a minimum rate of 10% of the gross distribution amount. Form 1099-R will be mailed to recipients and transmitted to the IRS to report the activity for the year. NOTE: If both documents are on file then the most recently received valid document will dictate tax treatment. Form W-9 is valid indefinitely. W-8BEN forms generally expire on December 31 of the third year following the year the form is signed and dated. GRID #2 W-8BEN on File Treaty Benefits Claimed W-9 on File Undocumented Account: IRS Presumption Rules Social Security Number Zero Treaty Country Tax Type Req d Min. W/H Tax Form #1 No N/A No Yes Yes FED 10% 1099-R #2 No N/A No Yes No NRA 30% 1042-S #3 No N/A No No N/A NRA 30% 1042-S Undocumented Account Scenario #1 (U.S. citizen or Resident Alien): A foreign distribution is taken and EITHER a valid W-8BEN OR W-9 form is NOT on file with Pershing. There IS a Social Security Number on record for the account AND the foreign address is in a zero treaty country (as defined on page 56). Federal tax will be withheld from the distribution at a minimum rate of 10% of the gross distribution amount. Form 1099-R will be mailed to recipients and transmitted to the IRS to report the activity for the year. Undocumented Account Scenario #2 (Foreign Citizen, Nonresident Alien): A foreign distribution is taken and EITHER a valid W-8BEN OR W-9 form is NOT on file with Pershing. There IS a Social Security Number on record for the account BUT the foreign address is NOT in a zero treaty country (as defined on page 56). NRA tax will be withheld from the distribution at a rate of 30% of the gross distribution amount. IRS Form 1042-S will be mailed to recipients (as noted on page 56) and transmitted to the IRS to report the activity for the year. Undocumented Account Scenario #3 (Foreign Citizen, Nonresident Alien): A foreign distribution is taken and EITHER a valid W-8BEN OR W-9 form is on NOT file with Pershing. There is NOT a Social Security Number on record for the account. Whether the foreign address is in a zero treaty country or not is immaterial to tax treatment determination. NRA tax will be withheld from the distribution at a rate of 30% of the gross distribution amount. IRS Form 1042-S will be mailed to recipients (as noted on page 56) and transmitted to the IRS to report the activity for the year. 55

58 RETIREMENT PRODUCT TAX INFORMATION IRS PUBLICATION 515 AND FORM 1042-S IRS PUBLICATION 515: WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN ENTITIES IRS Publication 515 contains a table with treaty rates for withholding from pension and annuity distributions to nonresident aliens (NRAs). If a country is not noted below then the NRA rate is 30% of the gross distribution amount. To receive the reduced rate an account holder must have a certified Form W-8BEN, in which treaty benefits are claimed, on file with Pershing and coded in Pershing s system. Zero Treaty Countries (0% NRA tax)*: Ashmore and Cartier Islands, Australia, Austria, Bangladesh, Barbados, Belgium, China, Christmas Island, Cocos (Keeling) Islands, Coral Sea Island Territory, Cyprus, Czech Republic, Egypt, Estonia, Finland, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Latvia, Lithuania, Luxembourg, Mexico, Morocco, Netherlands, New Zealand, Norfolk Island, Northern Ireland, Norway, Pakistan, Portugal, Romania, Russia, Slovak Republic, Slovenia, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad & Tobago, Tunisia, Turkey, Ukraine, United Kingdom, and Venezuela. Reduced Treaty Countries (15% NRA tax)*: Canada, Indonesia, and South Africa. U.S. TAX TREATMENT For purposes of tax treatment the United States includes U.S. military bases and U.S. possessions. U.S. POSSESSIONS* America Samoa, Baker Island, Guam, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Marshall Islands, Micronesia, Midway Islands, Navassa Island, Northern Mariana Island, Palmyra Atoll, Puerto Rico, Trust Territory of the Pacific Island, U.S. Virgin Islands, and Wake Island. FORM 1042-S IRS Form 1042-S (NOT Form 1099-R) is sent to retirement account holders to report nonresident alien distributions. These forms will be mailed to recipients by the March 15, 2008 IRS deadline, and copies will be available on or around that date in Online Documents of NetExchange Pro. Of note, the Box 1 Income Code is 14, the gross amount of the distributions will be reported in Box 2, the applicable tax rate will be in Box 5, and the amount of NRA withholding (if any) will be reported in Box 7. * At the date of publication of this handbook. SAMPLE TAX FORM 56