Preview of Updated Form 1099-B with Cost Basis - Charles Schwab

Preview of Updated Form 1099-B
with Cost Basis
July 27, 2011
Brian J. Keil
Charles Schwab
For institutional audiences and educational purposes only. This information is not intended to be a substitute for specific
individualized compliance, legal or tax advice. Where specific advice is necessary or appropriate, Schwab recommends consultation
with professionals in these fields.
Schwab Advisor Services serves independent investment advisors and includes the custody, trading and support services of Schwab.
© 2011 Charles Schwab & Co., Inc. (“Schwab”). Member SIPC. All rights reserved. (0711-4849)

Agenda
• Review of 2012 requirements
• Schwab's plans to comply
• Form 1099 Review
– Review IRS requirements
– Review changes and considerations
• Resources for advisors
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Cost Basis Legislation: Multi-Year Effort
Congress passed the Emergency Economic Stabilization Act on October 3,
2008, which requires custodians to report adjusted cost basis to the IRS and
our clients via Form 1099-B.
Equities
Mutual Funds
ETFs
DRIPs
Fixed Income
Options
Other securities
Covered Securities
Acquired on or after
January 1, 2011
Acquired on or after
January 1, 2012
Acquired on or after
January 1, 2013
Uncovered Securities
Acquired prior to
January 1, 2011
Acquired prior to
January 1, 2012
Acquired prior to
January 1, 2013
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2012 Requirements More Complex than 2010
Average Cost Method
• Available for 2012 covered securities
• Affects the cost basis of position and uses FIFO to select the lot on closing transactions
• The legislation creates two average cost positions: one covered and one uncovered
• Moving to or from Average Cost requires a written letter of authorization
• New gifting rules for securities using average cost method
DRIPs and ETFs
• Introduce the need to handle security-level accounting method
• Include the following new information on the Form 1099-B for covered transactions: cost
basis, acquisition date, holding period, covered/uncovered indicator and wash sale
disallowed loss
S Corps
• Eligible for 1099-B reporting starting with tax year 2012
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Legislative Compliance: High Priority at Schwab
• Upgrading of our accounting engine to comply with new 2012 requirements
• Enhance cost basis reporting service to send/receive data directly from mutual fund companies
• System changes to identify S Corp accounts (remediate all existing corporate accounts)
• Educating and communicating advisors and their clients
• Training our client-facing reps
• Redesigning our year-end reporting documents
– Redesign Form 1099 Composite
– Include cost basis information Form 1099-B for both covered and uncovered securities
– Introduce new Year-End Summary which includes:
• Realized Gain/Loss information
• Summary of fees
• Amortization and Accretion information
– Retirement of the Year-end Gain/Loss Report for taxable accounts only
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Additional Data Required on the Form 1099-B
Brokers are required to report the following on the 1099-B:
• Gross proceeds for all securities (except option sales)
• Cost basis for covered securities (includes acquired date, cost basis, ST/LT,
covered/uncovered, wash sale disallowed loss)
Brokers are permitted but not required to report the following on the 1099-B:
• Cost basis for uncovered securities (includes acquired date, cost basis, ST/LT,
covered/uncovered, wash sale disallowed loss)
• Cash in Lieu under $20
Brokers are not permitted to report the following on the 1099 but can report on
it in a supplemental section:
• Zero proceeds
• Negative proceeds
• Worthless securities
• Bankruptcy
• Option Sales (covered in 2013)
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Schwab will Provide Covered and Uncovered Cost Basis on 1099-B
Provide reporting for the following items on the 1099-B:
• Gross proceeds for all securities (except option sales)
• Cost basis for covered securities
• Cost basis for uncovered securities when available
Provide reporting for items not included on 1099-B in the Realized Gain/Loss
section:
• Zero proceeds
• Negative proceeds
• Worthless securities
• Bankruptcy
• Option sales (covered in 2013)
• Adjusted cost basis for certified fixed income assets
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Redesign of Form 1099 Composite
No room to add new
required data elements
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For illustrative purposes only

Redesign of Form 1099 Composite
Objective is to help make clients’ tax preparation easier
New Organization
• Landscape presentation allows for
easy inclusion of newly required
data fields
• New format aligns the Form 1099
Composite with:
– Schwab Customizable Statement
– Trade Confirm
• Year-End Summary section has
been reorganized
– Data is now grouped by Form 1040
Schedules
– Includes a table of contents to help
clients find their information easier
New Information
• 1099-B now contains cost basis
information for both covered and
uncovered securities
– Cost Basis
– Date Acquired
– Holding Period (LT or ST)
– Wash Sale
– Covered or Uncovered (cost basis
provided for uncovered securities as
long as we have it)
• Reorganized Year-End Summary
section now includes:
– Calculation of realized gain/loss in
RGL section
– Amortization and Accretion Info for
Fixed Income Assets
– Summary of Fees
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New Format Allows for Newly Required Data Fields
New
Organization
Landscape
Format
10
For illustrative purposes only

Form 1099-B: Most Updated Section
New
Information
Default Method
X=non-covered
Holding Period
Date Acquired
Cost Basis
Wash Sale
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For illustrative purposes only

Year-End Summary: Organized to Assist with Tax Forms
New
Information
New data added
to report
12
For illustrative purposes only

New Realized Gain/Loss Section
New
Information
Realized Gain or
Loss calculation
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For illustrative purposes only

Proactive Steps Advisors Can Take to Minimize Confusion
Data synchronization and reconciliation
• If you maintain cost basis in your PMS and do RGL reporting to your clients, it’s
imperative that you get your data reconciled with ours prior to end of this year if you
haven’t already done so
Develop a communications and training strategy
• Schwab will communicate via statement insert in October about the 2012
requirements and the redesigned 1099 Composite
• Schwab will send over 800k redesigned Form 1099s to clients of advisors and we
anticipate many of them will turn to you with questions
Develop an educational summary sheet for your clients reminding them what
they are responsible for reporting
• Explain covered vs. uncovered
• What is Schwab reporting to the IRS?
Reach out to clients’ CPAs and tax advisors directly
• Make sure they understand how Schwab will report cost basis information
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Cost Basis Legislation Resources
schwabadvisorcenter.com/costbasis
Schwab’s cost basis website is your
primary resource for up-to-date
information how Schwab is preparing
to comply with the legislation.
• New white paper titled “Cost Basis
Reporting: Preparing for 2012”
• Ongoing webcast series designed to
keep you up-to-date on the
legislation, our plans to comply and
technology enhancements.
• Several downloadable references
such as the covered/uncovered
securities and cost basis methods
charts.
• Easy access to information to provide
to third-party CPAs and tax attorneys.
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Cost Basis Legislation Resources
New white paper focuses on 2012
requirements:
• Background on 2012 requirements
• Two advisor case studies on proactive
communication and data synchronization
and reconciliation.
• 4 key steps advisors can take now to
prepare your back offices and clients
• Available at schwabadvisorcenter.com/costbasis
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Cost Basis Webcast Series
Helps you stay up to date and preview key changes.
Date
November 15 th
Webcast Topic
September 29 th Educating Your Client About the New Form 1099-B
October 25 th Preview of Technology Enhancements for Cost Basis
Cost Basis Changes for Advent ® and PortolioCenter ®
December 14 th Live Demo: New Cost Basis Technology Tools
Register at schwabadvisorcenter.com/costbasis
PortfolioCenter® is a product of Schwab Performance Technologies (SPT). Schwab Performance Technologies®
and Schwab are subsidiaries of The Charles Schwab Corporation.
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SOLUTIONS: Cost Basis Session
SOLUTIONS:
• One-day, live Advisor Services event series offered in 12 cities throughout July and
August (7 are remaining)
• It offers education sessions on Schwab's and other third party technologies used in
the advisors' day-to-day operations.
Cost Basis Session:
• Recap of 2011 regulatory requirement
• Live demonstrations of:
– Cost Basis tab on Schwab Advisor Center
– Lot trading on Web Trading Applet
– Cost Basis download files
• 2012 CBL requirements review
Register at solutions.schwab.com/SOL2011
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