PRIME CAPITAL SERVICES IMPORTANT MEMO #03-002M DATE: January 16, 2003 TO: ALL BRANCH MANAGERS & REGISTERED REPS RE: TAX FORMS ON LINE JANUARY 31 ST, 2003 TAX FORM 1099 Please be advised that National Financial Services (NFS) is in the process of creating Tax Reporting Statements for all non-retirement customers with reportable income. Please be reminded of the following important details: Client Mailing: Tax reporting statements along with the Understanding your 2002 Tax Statement Brochure (end of memo) will be mailed to each customer by the end of January 2003. The brochure clearly describes the details of the Tax Reporting Statement and provides some answers to frequently asked questions all geared toward helping your customers through their Form 1099. A copy of the brochure will be included in Friday s mail and will also be made available on line by Friday January 17, 2003. TAX FORM 5498 Client Mailing: By the end of January 2003, NFS, as agent for Fidelity Management Trust Company, will mail 2002 Form 5498 IRA Contribution Information to all Premiere Select owners, which includes Traditional, Roth, Rollover, SEP and SIMPLE IRAs, and IRA Beneficiary Distribution Accounts. The following information will be included in the mailing: Form 5498 Notice of Withholding: Provides Federal and State Tax withholding information on distributions from retirement accounts. 2002 Form 5498 IRA Contribution Information will be available on Streetscape SM and MyStreetscape SM and will reflect 2002 IRA contributions made between January 1, 2002, and December 31, 2002. You may request duplicate forms through our Relationship Management Team. Customers may want to consult their tax advisor or the IRS regarding specific filing requirements. Enhancements To Form 5498 Minimum Required Distribution (MRD) Information: In accordance with the 2002 Final MRD Regulations, NFS will inform Premiere Select IRA owners who will be age 70 ½ or older in 2003 that the Internal Revenue Service (IRS) requires IRA owners to take a MRD by April 1 of the year following the year they turn 70 ½ and complete all subsequent withdrawals by December 31 each year thereafter. Generally, these rules do not apply to a Roth IRA, during the accounts owners lifetime, and IRA Beneficiary Distribution Accounts. Important Memos are viewable at www.primefs.com under What s New Operations Bulletins. Please visit this site daily.
If the IRA owner would like NFS to calculate their MRD amount for their Premiere Select IRA(s), they will be directed to contact their investment representative. The Premiere Select MRD Calculation Request Form (MRD Calculation Request Form is being created for this purpose). A communication containing the MRD amount will be sent to the account owner. Further details regarding this process will follow in another Important Memo. The Premiere Select MRD Calculation Request Form (1.781798.100) is scheduled to be available in February and will be downloadable from our website at www.primefs.com. Missing Date of Birth: If IRA owners do not have a date of birth on file, then the Form 5498 will indicate that this information is missing and direct them to provide it to their investment representative. In addition, since IRA owners could be turning 70 ½ or over in 2003, NFS will also include the IRS mandated MRD reminder language discussed above in case it is appropriate. TAX DOCUMENTS AVAILABLE ON STREETSCAPE AND MYSTREETSCAPE: All tax documents for 2002 are scheduled to be available on Streetscape and MyStreetscape by January 31, 2003. If a user requests a tax document for an account, but processing has not yet been completed or for which no tax document exists, the user will see the following message: We are unable to locate any tax forms for your Account Number for one or more of the following reasons: The 2002 tax forms may not yet be available for viewing. The 2001 tax forms are no longer available for viewing. Our records show that there is no taxable activity to report on this account. Please watch for more information in the near future. Please contact our Relationship Management Team at 845-485-2220 option 2 if you have any questions. Important Memos are viewable at www.primefs.com under What s New Operations Bulletins. Please visit this site daily.
UNDERSTANDING YOUR 2002 TAX STATEMENT
YOUR NATIONAL FINANCIAL SERVICES LLC 2002 TAX STATEMENT NFS is committed to providing concise, detailed information, when you need it, to complete your income tax returns. Your tax statement has two parts. First is the Tax Reporting Statement, which is the information we report to the IRS on Forms 1099-DIV, 1099-INT, 1099-MISC, 1099-B, and 1099-OID. Second is the Supplemental Information section, which includes transaction activity details you may find helpful in preparing your income tax returns and is not reported to the IRS. Refer to the enclosed Information to Help You Understand Your Tax Forms for IRS instructions and line item descriptions about the information reported on your Tax Reporting Statement. We suggest you consult your tax advisor about the use of this information in preparing your 2002 income tax returns. Transferred Accounts If your account was transferred to our firm in 2002, your tax statement only includes activity from the time you started conducting business with our firm. Your former clearing firm should provide 1099 forms for activity that occurred before your account was transferred. 1 2 3 4 5 Brokerage Name and Address: ABC INVESTMENT SERVICES P.O. BOX 3100 SAN DIEGO, CA 90051 Form 1099-DIV * MRS. JANE J. PUBLIC 2002 Dividends and Distributions 2002 Tax Reporting Statement XXX-123456 999-99-9999 1 of 2 Payer s Name and Address: NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET. 5TH FLR NEW YORK, NY 10281-5500 Federal ID Number: 04-3523567 1 Ordinary Dividends... 767.13 2a Total Capital Gain Distributions (Includes 2b 2e)... 4,766.27 2b Capital Gains that represent 28% Rate Gain... 3,612.16 2c Capital Gains that represent Qualified 5-Year Gain... 50.00 2d Capital Gains that represent Unrecaptured 1250 Gain... 0.00 2e Capital Gains that represent Section 1202 Gain... 0.00 3 Non-Taxable Distributions... 0.00 4 Federal Income Tax Withheld... 233.76 5 Investment Expenses... 0.00 6 Foreign Tax Paid... 0.00 7 Foreign Country or U.S. Possession... 8 Cash Liquidation Distributions... 0.00 9 Non-Cash Liquidation Distributions... 0.00 Form 1099-INT * 1 Interest Income not included in Line 3... 193.59 2 Early Withdrawal Penalty... 0.00 3 Interest on U.S. Savings Bonds and Treas. Obligations...395.00 4 Federal Income Tax Withheld... 0.00 5 Investment Expenses... 0.00 6 Foreign Tax Paid... 0.00 7 Foreign Country or U.S. Possession... Form 1099-MISC * 2002 Interest Income 2002 Miscellaneous Income 2 Royalties... 150.00 4 Federal Income Tax Withheld... 0.00 Gross Proceeds Less Commissions...718,110.71 Federal Income Tax Withheld...0.00 Gross Proceeds from each of your security transactions are reported individually to the IRS. Refer to the 1099-B section of this statement. Report gross proceeds individually for each security on the appropriate IRS tax return. Do not report gross proceeds in aggregate. Total Original Issue Discount...114.31 Total Original Issue Discount on U.S. Treasury Obligations...350.98 Original Issue Discount (OID) amounts are reported individually to the IRS. Refer to the Original Issue Discount detail section of this statement. OMB NO. 1545-0110 Copy B for Recipient OMB NO. 1545-0115 Copy B for Recipient Summary of 2002 Proceeds from Broker and Barter Exchange Transactions Summary of 2002 Original Issue Discount OMB NO. 1545-0112 Copy B for Recipient *This is important tax information and is being furnished to the Internal Revenue Service. 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. Please see the enclosed important instructions. 007 Statement is for illustrative purposes only. Certain categories of transactions in the statement illustrated here may not pertain to your account. TAX REPORTING STATEMENT 1 1099-DIV Dividends and Distributions lists all taxable and nontaxable dividends earned on stocks and distributions from mutual funds held in your account. This may include dividends and/or distributions from the fund you use as your core money market fund in your brokerage account. Distributions from the core money market account fund may be exempt from federal and/or state tax. Distributions shown on Form 1099-DIV must be reported on your 2002 federal income tax return regardless of whether the dividends and/or distributions were paid in cash or reinvested. 2 1099-INT Interest Income lists all interest earned on government and corporate debt obligations and short-term certificates of deposit, as well as interest earned from cash in your brokerage account. 3 1099-MISC Miscellaneous Income lists other reportable income, such as royalty payments from grantor trusts reportable on your federal income tax return, Form 1040, Schedule E. Consult your tax return instructions for guidance on reporting of other types of income listed here. 4 & 5 Summary of Proceeds from Broker and Barter Exchange Transactions and Original Issue Discount list gross proceeds less commissions from sales and total Original Issue Discount for easy reference.
2002 Tax Reporting Statement XXX-123456 999-99-9999 2 of 2 Brokerage Name and Address: ABC INVESTMENT SERVICES P.O. BOX 3100 SAN DIEGO, CA 90051 8 2002 Supplemental Information Payer s Name and Address: NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET. 5TH FLR NEW YORK, NY 10281-5500 MRS. JANE J. PUBLIC Federal ID Number: 04-3523567 XXX-123456 999-99-9999 1 of 4 2002 Supplemental Information XXX-123456 999-99-9999 2 of 4 6 7 2002 Proceeds from Broker and Form 1099-B * MRS. JANE J. PUBLIC (OMB NO. 1545-0715) Barter Exchange Transactions Copy B for Recipient 1a. Date 2. Stocks, 4. Federal Income 5. Description 1b. CUSIP Quantity Event of Sale Bonds, etc. Tax Withheld AMERICAN CENTURY VALUE FUND 025076506 4,066.48200 Sale 04/03/02 131,210.42 0.00 FIDELITY HONG KONG & CHINA FUN 315910778 1,445.21800 Sale 01/27/02 34,872.61 0.00 Detail Information 1099-DIV Dividends and Distributions MRS. JANE J. PUBLIC FIDELITY JAPAN ST RED FEE 280. 315910885 1,529.05200 Sale 08/28/02 25,199.18 0.00 FIDELITY CONTRAFUND 316071109 685.71400 Sale 01/27/02 29,463.89 0.00 Description CUSIP Date ANYTOWN, NY 12345-1234 814.33200 9 Total Sale 08/28/02 16,051.82 0.00 This detail information is not reported to the IRS. It is provided for your assistance in tax return preparation. FIDELITY EUROPE 316343300 3,483.24700 Sale 08/27/02 148,441.04 0.00 Ordinary Dividends - LINE 1 Detail Information 1099-INT Interest FIDELITY DIVIDEND GROWTH 316389402 2,403.37400 Dividend Sale Distributions 01/27/02 47,403.62 0.00 2,458.21000 Sale 03/19/02 77,541.63 0.00 AMERICAN CENTURY VALUE 025076506 01/05/02 100.00 4,629.63000 Sale 08/28/02 98,225.80 0.00 10 Description CUSIP Date Total 06/01/02 56.55 156.55 SELECT NATURAL GAS EXCHANGE FE 316390525 1,312.87600FIDELITY SaleDAILY 02/11/02 INCOME TRUST17,315.01 316093103 0.00 06/10/02 This 6,574.88 detail information is not reported 574.88 to the IRS. It is provided for your assistance in tax return preparation. Ordinary SELECT REGIONAL BANKS LT RED F 316390640 931.66000 Sale 01/27/02 39,692.40 0.00 Total Dividend Interest - Distributions LINE 1 731.43 1,451.61300Short Sale Term Capital 03/19/02 Gain Distributions 26,244.73 0.00 Interest Payments 1,868.89200FIDELITY SaleMAGELLAN 08/27/02 26,448.56 316184100 0.00 06/10/02 AON CORP NT DTD 06/15/1993 35.70 6.7 037389AC7 35.70 01/02/02 25.96 Less Commissions Total 718,110.71 0.00 Total Short-Term Capital Gain Distributions 35.70 02/05/02 67.63 93.59 Total Ordinary Dividends - LINE 1 767.13# Total Interest Payments 93.59 Accrued Interest on Sale of Bonds #Under the Internal (OMB Revenue NO. 1545-0117) Code, distributions of short-term RJR gains NABISCO are taxable HLDGS as dividends NT DTDand are 74960LBC9 05/05/02 50.00 50.00 Form 1099-OID * 2002 Original Issue Discount reported on Line 1 of FORM 1099-DIV. Report Total Ordinary Dividends in aggregate on the appropriate Copy B for Recipient Total Accrued Interest on Sale of Bonds 50.00 IRS tax return. Do not separate dividend distributions from short-term capital gain distributions. 1. Original Issue 6. Original Issue Discount Original Issue Discount Paid on Short-Term Instruments 5. Description 1b. CUSIP Discount for 2002 on U.S. Treasury Obligations REFCO REALTY CCRP 987456BB4 01/01/02 50.00 50.00 Capital Gain Distributions (28% Gain) - LINE 2b Total Original Issue Discount Paid on Short-Term Instruments 50.00 BOLSA CHICA CO SR SUB P.I.K. D 097679AA2 AMERICAN CENTURY 114.31 VALUE 025076506 -- 01/05/02 781.10 781.10 Total Ordinary Interest - LINE 1 193.59 U S TREAS NOTES 4.50% 01/31/2002 9128274Z2 SELECT HOME FINANCE-- 316390723 125.00 02/15/02 2,831.06 2,831.06 Interest on U.S. Savings Bonds and Treas. Obligations - LINE 3 Total Capital Gain Distributions (28% Gain) - LINE 2b 3,612.16 U S TREAS SEC STR PPD INT PMT GENERIC 912833KW9 -- 350.98 Interest Payments - Treasury Bonds and Notes Total Capital Gain Distributions 114.31 (Qualified 5-Year Gain) - 225.98 LINE 2c U S TREAS NOTES 4.50% 01/31/2002 9128274Z2 02/15/02 395.00 395.00 Total Interest Payments - Treasury Bonds and Notes 395.00 FIDELITY MAGELLAN 316184100 09/10/02 50.00 50.00 This may not be the correct figure to report on your income tax return. Please see the enclosed important instructions. Total Interest on U.S. Savings Bonds and Treas. Obligations - LINE 3 395.00 Total Capital Gain Distributions (Qualified 5-Year Gain) - LINE 2c 50.00 Capital Gain Distributions Subject to 20% Gain Detail Information 1099-MISC Miscellaneous Income The portion of Cap. Gain Dist. subject to the 20% Gain is equal to Line 2a less amounts shown on lines 2b 2e. SELECT HOME FINANCE 316390723 05/20/02 Description1,104.11 1,104.11 CUSIP Date Total Total Capital Gain Distributions Subject to This 20% detail Gaininformation is not reported 1,104.11 to the IRS. It is provided for your assistance in tax return preparation. Total Long-Term Capital Gain Distributions Royalties - LINE - LINE 2a (Includes 2 2b 2e) 4,766.27 GUINNESS FLIGHT ASIA SMALL CAP 402032403 01/02/02 125.00 Federal Income Tax Withholding - LINE 4 02/05/02 25.00 150.00 SELECT FOOD AND AGRICULTURE 316390848 06/10/02 178.21 178.21 Total Royalties - LINE 2 150.00 JANUS INVT FD BALANCED FD 471023879 06/28/02 55.55 55.55 Total Federal Income Detail Tax Information Withholding - LINE 4 1099-OID 233.66 Original Issue Discount *This is important tax information and is being furnished to the Internal Revenue Service. 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. Please see the enclosed important instructions. Begin End Days OID Face 11 Description CUSIP Date Date Held Rate Total This detail information is not reported to the IRS. It is provided for your assistance in tax return preparation. Original Issue Discount for 2002 - Column 1 BOLSA CHICA CO SR SUB P.I.K. D 097679AA2 03/15 03/20 5.3383028 842.00 50.00 03/22 03/28 6.3383028 842.00 50.00 03/31 04/02 2.3383028 842.00 14.31 114.31 Total Original Issue Discount for 2002 - Column 1 114.31 Original Issue Discount on Treasury Obligations - Column 6 U S TREAS NOTES 4.50% 01/31/2002 9128274Z2 01/02 02/29 58.0215517 10,000.00 125.00 U S TREAS SEC STR PPD 912833KW9 01/01 02/14 45.0502173 100,000.00 225.98A Total Original Issue Discount on Treasury Obligations - Column 6 350.98 6 1099-B Proceeds from Broker and Barter Exchange Transactions lists all proceeds from the sale of stocks, bonds, and mutual funds; taxable tenders and mergers; and short sales. All transactions are reported on a trade-date basis and are the net amount after commissions. These transactions will result in short- or long-term capital gains or losses, both of which must be reported on your federal income tax return(s). These proceeds must match the amounts you report on Form 1040, Schedule D, Capital Gains and Losses. 7 1099-OID Original Issue Discount lists the Original Issue Discount (OID) that you must report for the current year. OID is the excess of the maturity value over the issue price of a debt instrument, and a portion of the discount is treated as earned by the holder each year. OID on Treasury obligations listed in column 6 is exempt from state and local income taxes. If you hold collateralized debt obligations (CDOs), which include real estate mortgage investment conduits (REMICs) and collateralized mortgage obligations (CMOs), you may receive a separate 1099-OID form in March to report this OID. Consult your tax advisor or IRS Publication 1212, List of Original Issue Discount Instruments, for more specific reporting information. 8 Supplemental Information The information in the Supplemental Information section is not reported to the IRS. Detail information in the Supplemental Information section itemizes income listed on your 1099-DIV, 1099-INT, 1099- MISC, and 1099-OID forms and provides convenient line-byline reporting for easy cross-referencing. 9 Dividends and Distributions Details have been expanded to identify the short-term capital gain distributions portion of ordinary dividend distributions. Short-term gain distributions are treated as ordinary income for tax purposes. 10 Interest Details have been expanded to identify the type of interest being reported, such as accrued interest on the sale of bonds or Original Issue Discount on short-term instruments. 11 Original Issue Discount Details Securities in the Original Issue Discount details section marked with an (A) report the actual accrual information based on the purchase price of the non-remic securities. For all other securities NFS uses the default from IRS Publication 1212, List of Original Issue Discount Instruments, to estimate the accrual amount.
2002 Supplemental Information XXX-123456 999-99-9999 3 of 4 2002 Supplemental Information MRS. JANE J. PUBLIC XXX-123456 999-99-9999 4 of 4 12 Other Information For Tax Return Preparation The information on this and the following pages is not reported to the IRS. It is provided for your assistance in tax return preparation. Tax-Exempt Dividends and Interest... 2,277.24 Margin Interest Paid... 2,131.97 Return of Principal... 75.00 MRS. JANE J. PUBLIC Non-Reportable Option Sales... 1,073.17 Purchase Detail (Including Commissions) Cost Less Accrued Interest Paid...23,100.67 Accrued Interest Paid...0.00 13 14 Detail Information Tax-Exempt Dividends and Interest Detail Information Non-Reportable Option Sales 15 Description CUSIP Date Tax-Exempt Total Description CUSIP Sale Date Quantity Total Tax-Exempt Dividends CALL E M C CORP MASS MAR 45 2686489CC 03/03/02 5 162.48 FIDELITY NJ MUNICIPAL MONEY MKT 316089309 01/02/02 57.08 03/05/02 30 910.69 1,073.17 02/05/02 43.52 Total Option Sales 1,073.17 03/05/02 30.03 04/05/02 29.22 05/05/02 29.52 Detail Information Return of Principal 06/05/02 24.75 07/05/02 27.02 16 Description CUSIP Date Total 08/05/02 28.11 09/05/02 31.96 10/05/02 35.57 11/05/02 9.01 SALOMON INC GEN TERM 9.00% 795439GAN 02/16/02 75.00 75.00 352.24 Principal 75.00 12/05/02 6.45 Total Return of Total Tax-Exempt Dividends 352.24 Tax-Exempt Interest Detail Information 2002 Purchase Detail (Including Commissions) 1,925.00 ARIZONA ST MUN FING PROG CTFS 040625MD4 03/03/02 1,925.00 Tax-Exempt Interest 17 1,925.00 Description Date of Purchase Accrued Interest Paid CUSIP Quantity Purchase Cost 2,277.24 Total Tax-Exempt Dividends and Interest Detail Information Margin Interest Paid FIDELITY HIGH INCOME 316146406 7.39400 03/31/02 94.05 0.00 10.21600 04/30/02 133.62 0.00 11.17800 05/28/02 142.85 0.00 Description Date Total 40.73400 06/30/02 509.18 0.00 14.28400 07/30/02 176.69 0.00 Margin Interest @ 7.800% AVG B 01/20/02 395.76 12.87500 08/31/02 156.43 0.00 Margin Interest @ 8.050% AVG B 02/03/02 228.62 10.41500 09/30/02 124.35 0.00 Margin Interest @ 8.050% AVG B 02/21/02 408.53 10.25400 10/29/02 122.43 0.00 Margin Interest @ 8.050% AVG B 03/20/02 723.51 Margin Interest @ 8.300% AVG B 03/27/02 180.56 10.17100 11/30/02 122.46 0.00 10.40400 12/31/02 124.85 0.00 Margin Interest @ 8.300% AVG B 04/23/02 194.99 1.53800 03/12/02 72.68 0.00 Total Margin Interest Paid GROWTH 2,131.97 & INCOME FIDELITY 316389204 1.47000 06/11/02 68.08 0.00 38.19600 09/03/02 1,732.96 0.00 8.25300 12/17/02 377.79 0.00 FIDELITY DIVIDEND GROWTH 316389402 198.47800 03/26/02 6,000.00 0.00 66.15900 03/29/02 2,000.00 0.00 20.23200 09/03/02 590.15 0.00 0.50100 12/10/02 14.24 0.00 JANUS TWENTY 471023408 159.80600 03/29/02 10,050.21 0.00 5.84000 12/10/02 466.07 0.00 0.27000 12/10/02 21.58 0.00 Includes commissions, and is less applicable. Total 23,100.67 0.00 Accrued Interest Paid, if 12 Other Information for Tax Return Preparation lists tax-exempt dividends from mutual funds, tax-exempt interest from municipal bonds, margin interest paid during 2002, return of principal, non-reportable option sales including premiums received from writing options, and purchases made during 2002. 13 Tax-Exempt Dividends and Interest You are required to report tax-exempt dividends and interest on your federal income tax return, Form 1040, Line 8B, and may be required to report tax-exempt income on your state income tax return. We do not report tax-exempt income to the IRS, but we may be required to report this income to California or other state tax authorities. 14 Margin Interest Paid may be deductible as an investment expense. 15 Non-Reportable Option Sale You may need to report the capital gains or losses on sales of options on your federal income tax return, Form 1040, Schedule D. 16 Return of Principal Return of Principal distributions are normally not taxed. You reduce your cost basis for a security by the amount of the return of principal. The result is an adjustment to the gain or loss on subsequent sales or redemptions of that security. We do not report this information to the IRS. 17 Purchase Detail lists purchases made during 2002, including commissions and accrued interest paid. The IRS requires that you report realized gains and losses from security transactions by trade date, not settlement date, on your income tax return. The transactions listed here are reported by trade date.
Q&A FREQUENTLY ASKED QUESTIONS Why is there a difference between my National Financial Services LLC statements and what is reported to the IRS? (NFS) must adhere to IRS requirements when reporting on Forms 1099, which may result in differences between what is on your monthly and quarterly statements and what is reported to the IRS. For example, the IRS requires that transactions on Form 1099-B be reported on a trade-date basis even though your statements reflect sales on a settlement-date basis. Additionally, mutual fund distributions declared as payable to shareholders of record in December 2002, and paid in January 2003, are taxable as 2002 distributions and reported on Form 1099-DIV for the 2002 reporting year. Why did I receive a corrected Form 1099-DIV? Mutual funds and REITs (Real Estate Investment Trusts) may reclassify income after we issue your Tax Reporting Statement. Prior to issuing your statement, NFS calls companies in search of reclassified income to reduce the number of corrected forms mailed to our customers. However, when necessary, we will send you a corrected Form 1099-DIV to reflect reclassified information. Use the information on your corrected Form 1099-DIV, not the information on your statement, for tax returns. How am I taxed on mutual fund distributions? Unlike dividends from individual securities, which are typically taxable in the year the dividends are paid, mutual fund distributions are taxable based on the record date of the distribution. For example, mutual fund distributions declared as payable to shareholders of record in December 2002, and paid in January 2003, are taxable as 2002 distributions and reported on Form 1099-DIV. What are the tax implications of investing in a foreign security? Dividend and interest earned on foreign securities may be subject to a withholding tax by the country from which it was paid. Form 1099-DIV reports the gross amount of the dividend and the amount of foreign tax, if any, withheld at the source. You must report the gross amount of the dividend on your tax return; however, you may also be able to deduct or receive credit for taxes paid to a foreign country. If you did not hold your shares for 15 days surrounding the dividend date, you may not be eligible to claim a foreign tax credit. Consult your tax advisor or refer to IRS Publication 514, Foreign Tax Credit for Individuals. How should I treat accrued interest on bond purchases? Your Form 1099-INT reports the full interest payment credited to your account. To determine the amount of taxable interest, subtract the amount of accrued interest you paid at the time of purchase (found in the Purchase Detail section) from the full interest payment credited to your account. This calculation is reconciled on your federal income tax return. My Form 1099-OID shows amounts in column 1 and column 6. What is the difference? Column 6 reports Original Issue Discount (OID) income accrued on U.S. Treasury obligations only. Column 1 reports OID accrued on all other types of OID instruments. Report all OID on Form 1040, Schedule B, as interest income. When determining my holding period for sales, do I use the trade date or settlement date? The IRS requires you to use the trade date to determine your holding period. The Date of Sale on Form 1099-B is the trade date for each sale. Your monthly statement reports trades by settlement date, which is the date payment is due. Continued on back
Q&A FREQUENTLY ASKED QUESTIONS Why are nontaxable distributions reported to the IRS? We are required to report these distributions to you and to the IRS. Nontaxable distributions generally reduce the cost basis of your investment. This becomes important when you sell your investment and need to calculate your gain or loss. However, if the cost basis of your stock has been reduced to zero, you must report subsequent nontaxable distributions as capital gains even though we report them as nontaxable distributions. How are my short sales reported? All short sales are reportable events. Short sales not yet covered are not reportable by you for tax purposes. However, you must reconcile this difference between your reporting and ours on Form 1040, Schedule D, by attaching an explanation that this transaction represents a short position that has not yet been covered. All gains and losses will be reconciled in the year in which the short position was covered. All short sales against the box must be reported and reconciled on Form 1040, Schedule D. For more information on short sales see IRS Publication 550, Investment Income and Expenses, or consult your tax advisor. How am I taxed on qualified 5-year capital gains? Gains on securities sold after being held more than five years are taxed at a lower capital gains tax rate if you are in the 15% or lower ordinary income tax bracket. If your tax bracket is 15% or lower, your maximum capital gains tax rate is 8% for qualified 5-year gains. If you are eligible, the 8% tax rate applies to: qualified 5-year gain distributions from mutual funds (reported on Form 1099-DIV), and gains on securities sold after January 1, 2001, that you held more than five years (identified in your year-end Investment Report as 5-LT). Additional Information For answers about your brokerage account or to request additional copies of your Tax Reporting Statement, please call your broker/dealer. For advice about your individual tax situation or help in preparing your tax return, consult your tax advisor or call the IRS at 800-829-1040. The IRS provides online assistance at www.irs.gov. 331120, Member NYSE, SIPC NFS-1099-0103 82 Devonshire Street, Boston, MA 02109 1.710415.104