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I NFORMATION R EPORTING OF C USTOMER ’ S B ASIS IN S ECURITIES T RANSACTIONS Jerri LS Langer COKALA Tax Information Reporting Solutions, LLC Phone: 734.396.9041.

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Presentation on theme: "I NFORMATION R EPORTING OF C USTOMER ’ S B ASIS IN S ECURITIES T RANSACTIONS Jerri LS Langer COKALA Tax Information Reporting Solutions, LLC Phone: 734.396.9041."— Presentation transcript:

1 I NFORMATION R EPORTING OF C USTOMER ’ S B ASIS IN S ECURITIES T RANSACTIONS Jerri LS Langer COKALA Tax Information Reporting Solutions, LLC Phone: Website:

2 2 A GENDA ►Overview of new IRC §6045(g): Covered securities and effective dates, conventions for determining adjusted basis o Special wash sale requirements o SCorp reporting o What happens with regulated investment companies (mutual funds)? o Special provisions for dividend reinvestment plans (DRIPs) ►§6045A: Transfer statement and who it attaches to ►§6045B: Issuer’s statement of organizational action affecting basis ►§6045(h): Option reporting ►§6045(b): Feb. 15 payee statements ►What it all means for us? Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

3 1099-B REPORTING OF ADJUSTED COST BASIS ►Adjusted basis reporting added by §403 of the Energy Improvement and Extension Act of ►Modified §6045(b),(g),and (h); §6045A and §6045B; and §1012 to create a new reporting scheme that will: o Change reporting for “brokers” now using B to report trade proceeds (including fund redemptions) and o Place requirements on many that may not have been considered “brokers” under original §6045 (issuers, transfer agents, equity admin., bank trust departments, etc.) 3 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

4 1099-B REPORTING OF ADJUSTED COST BASIS ►IRS (with Treasury) can and probably will change the reporting we now know on 1099-B in very fundamental ways! 4 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

5 1099-B REPORTING OF ADJUSTED COST BASIS ►Every broker that is required to file a return under §6045(a) from the sale of a “covered security” must include in the return: The customer’s adjusted basis in the security and Whether any gain or loss with respect to that security is long-term or short-term. ►Query: can we report basis if not a “covered security”? ►Query: what happens if sale includes both covered and uncovered in the same ticket? (Special exception for mutual funds does not apply to other securities.) 5 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

6 C OVERED S ECURITIES ►“ Covered security ” is any “ specified security ” acquired on or after the “ applicable date ” if the security was: o Acquired through a transaction in the account of which the security was held, or o Transferred to that account from an account in which the security was a covered security, but only if the transferee broker received a “ transfer statement ” with respect to the transfer. ►Query: What if the transfer statement is incomplete? ►Query: What if the basis information in the transfer statement is on face incorrect? ►Query: Can 3 rd party (or customer) provide basis information? 6 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

7 S PECIFIED SECURITIES AND APPLICABLE DATES ►“Specified securities” with applicable dates: o Any share of stock in a corporation (Jan. 1, 2011) o Stock of a regulated investment company (Jan. 1, 2012) o Stock acquired in connection with a DRIP ((Jan. 1, 2012) o Any note, bond, debenture, or other evidence of indebtedness (Jan. 1, 2013) 7 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

8 O PTIONS ARE NOW COVERED ►Options transactions are specified where options are granted or acquired on or after Jan. 1, ►Effective 2013, gross proceeds option reporting as well as basis reporting is required when there is: o A lapse of, or closing transaction with respect to, an option on a “ specified security ” or o An exercise of a cash-settled option on a “ specified security ”. 8 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

9 COMMODITIES, ETC. ►Any commodity, or a contract or a derivative with respect to the commodity, if the Secretary determines that adjusted basis reporting is appropriate; and o Any other financial instrument with respect to which the Secretary determines that adjusted basis reporting is appropriate. o When the Secretary determines but no earlier than on or after Jan. 1, ► Short sales : gross proceeds and basis reporting is required in the year in which the short sale is closed (rather than, as under the present law rule for gross proceeds reporting, the year in which the short sale is entered into). 9 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

10 A DJUSTED COST BASIS ►For any sale, exchange, or other disposition of a specified security on or after the applicable date, §1012(c) provides that the conventions under regulations apply on an account-by-account basis. ► FIFO : Adjusted basis of any security (except for mutual funds and stock acquired in connection with a DRIP) is determined under the first-in first-out method (FIFO) unless : o Specific ID : the customer notifies the broker by means of making an adequate identification of the stock sold or transferred at the time of sale (includes ID of security through LIFO, Hi-Lo, or any other method). 10 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

11 A DJUSTED COST BASIS ► Mutual funds and DRIPs : the adjusted basis is determined in accordance with the broker’s default method under IRC §1012 unless the customer notifies the broker that the customer elects another permitted method (FIFO, specific ID, single-category and double-category averaging). o Query: can we handle this? Some are asking that the double-category averaging rules be eliminated. ► Mutual funds (and brokers holding fund shares) may elect (at the time and in the form and manner prescribed by the Secretary), on a stockholder-by stockholder basis, to treat as covered securities all stock in the mutual fund held by the stockholder without regard to when the stock was acquired. 11 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

12 DRIP S ►If stock is acquired on or after January 1, 2011, in connection with a DRIP, §1012(d) provides that the basis of that stock is determined under one of the basis computation methods permissible for mutual funds. o Average cost methods (single or double category) ► Broad DRIP definition : Any arrangement under which dividends on stock are reinvested in stock identical to the stock with respect to which the dividends are paid. ►Query: what does this really mean and can the rules be electable on the part of the broker? 12 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

13 DRIP S ►Stock is treated as “ acquired in connection with” a DRIP if the stock is acquired pursuant to the DRIP plan or if the dividends paid on the stock are subject to the DRIP plan. ► KEY : Rules applies only while the stock is held as part of the plan. 13 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

14 DRIP S ► So…..DRIP stock transferred to another account : will have a cost basis equal to its basis in the DRIP immediately before the transfer (with any proper adjustment for charges (loads) incurred in connection with the transfer), ►But after the transfer, the transferee broker may use the otherwise applicable convention (that is, FIFO or Specific ID) for determining which shares are sold when a sale is made of some but not all shares of a particular security. 14 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

15 W ASH S ALES ► Wash Sales : The adjusted basis is determined without taking into account the wash sale rules under §1091 unless the acquisition and sale transactions resulting in a wash sale: o Occur in the same account and o Are in identical securities (rather than substantially identical securities). 15 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

16 S C ORP R EPORTING ► S Corp : New §6045(g)(4) provides that an S Corp (other than a financial institution) is reportable on Form 1099-B for any sale of a covered security acquired after December 31, ►IRS is looking at amending W-9 and is open to other ideas. 16 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

17 N EW F EB. 15 PAYEE S TATEMENT D ATE ►New Feb. 15 payee statement due date: o Form 1099-B o Form 1099-MISC for substitute payments and attorney payments o Other Forms 1099 statements with respect to reportable items (including, but not limited to, interest, dividends, and royalties) that are furnished with consolidated reporting statements (as defined in regulations). o See Notice , I.R.B. 420 (providing that, with respect to reportable items from calendar year 2008, brokers have until February 17, 2009, to report all items that they customarily report on their annual composite form recipient statements). 17 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

18 T RANSFER S TATEMENTS ►Under new §6045A, a broker and any other person specified in regulations that transfers to a broker a covered security held by that person must furnish to the transferee broker a written statement that allows the transferee broker to satisfy the basis and holding period reporting requirements. Unless the Secretary provides otherwise, the statement must be furnished to the transferee broker not later than fifteen (15) days after the date of the transfer. 18 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

19 I SSUER R ETURN R EQUIREMENT ►Under new §6045B, an issuer of specified securities must file a return according to forms or regulations prescribed by the Secretary setting forth a description of any organizational action (such as a stock split or a merger or acquisition) that affects: o The basis of the specified security, o The quantitative effect on the basis of that specified security, and o Any other information required by the Secretary. ►Must be filed within forty-five (45) days after the date of the organizational action or, if earlier, by January 15 of the year following the calendar year during which the action occurred. 19 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

20 I SSUER R EQUIREMENTS ►Must also furnish a nominee or a certificate holder if there is no nominee a written statement on or before January 15 of the year following the calendar year in which the organizational action took place. ► Secretary may waive the requirements if the issuer makes publicly available, in the form and manner determined by the Secretary, the name, address, telephone number, and address of the information contact of that person, and the information about the organizational action and its effect on basis otherwise required to be included in the return. ►IRS is looking for help on this. 20 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC

21 A NY TAX ADVICE INCLUDED IN THIS WRITTEN OR ELECTRONIC COMMUNICATION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY THE TAXPAYER, FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER BY ANY GOVERNMENTAL TAXING AUTHORITY OR AGENCY. 21 Copyright 2009 COKALA Tax Information Reporting Solutions, LLC 21

22 Q UESTIONS ? Q uestions ? Questions? Copyright 2009 COKALA Tax Information Reporting Solutions, LLC 22

23 ©Copyright 2009, Pershing LLC, member FINRA, NYSE, SIPC. Trademark(s) belong to their respective owners. The information contained herein is proprietary to Pershing LLC and may not be reproduced or distributed. Lawrence Morillo Managing Director Pershing Shareholders Services Association Cost Basis Reporting July 17, 2009

24 Your Business Without Limits™Page OVERVIEW >Reporting Requirements >Project Management >Areas of Focus >Other Considerations >Customer Communications

25 Your Business Without Limits™Page 25 Reporting Requirements

26 Your Business Without Limits™Page Reporting Requirements >Provision under Section 403 of the Emergency Economic Stabilization Act, signed on October 3, 2008 >Requires all brokers to report on Form 1099-B: –Gross proceeds of the sale of a security –Adjusted basis of all covered securities sold –Whether the gain or loss is short-term or long-term >Previous requirement was to report only gross proceeds of securities sold >Expected to raise $6.67 billion in tax revenues over a 10 year period (according to the Joint Committee on Taxation report) >Intended to close tax gap on gains/losses from securities

27 Your Business Without Limits™Page Effective Dates >Effective dates are phased in as follows: –Stock acquired on or after January 1, 2011 –Mutual Funds, dividend reinvestment plan stock acquired on or after January 1, 2012 –Debt instruments, options, other securities acquired on or after January 1, 2013 >New reporting requirement does NOT apply retroactively >Reporting of debt obligations and complex securities delayed >Annual due date for furnishing Forms 1099-B –Currently - January 31 –Extended - February 15

28 Your Business Without Limits™Page Covered Security >Acquired through a transaction in the account >Transferred from an account in which such security was a covered security –only if the broker received a transfer statement Any specified security acquired on or after the applicable date

29 Your Business Without Limits™Page Calculation of Adjusted Basis >Adjusted basis must be calculated using the FIFO method unless investor indicates specific tax lots >For securities where the average basis method is permissible (mutual funds and dividend reinvestment plans): –For shares acquired on/after January 1, 2012, brokers can use their default method (as long as it is permissible under section 1012), unless the customer notifies the broker of his/her election to use another method –For shares acquired before January 1, 2012, brokers can elect to treat all the shares (pre- and post- effective date) in a fund as covered securities without regard to their effective date in determining the adjusted basis of the securities sold

30 Your Business Without Limits™Page Wash Sales >A wash sale under IRC section 1091 prohibits a taxpayer from claiming a loss on the sale of an investment if that same investment is purchased within 30 days before or after the sale (total of 61 days). >Reporting applies only when transactions are: –In the same account within the same firm, and –Involve identical securities (e.g., same CUSIP) >Transactions in another account would not be counted, unless the Treasury provides otherwise >Since rights or options on a stock are not considered “identical” to the stock, transactions in rights/options need not be taken into account

31 Your Business Without Limits™Page Short Sales The reporting time of short sales proceeds has changed: >Current regulation allows a broker to elect whether to report short sale either on the date the short sale is opened or on the date it is closed >New statute mandates that short sales be reported on the date the short sale is closed >Needed to enable brokers to report gross proceeds and adjusted basis of securities sold short at the same time

32 Your Business Without Limits™Page Options >Current regulations except sales of options from gross proceeds reporting >New legislation eliminates this exception –The amount of premium received or paid for the option is treated as:  an adjustment to gross proceeds from sale -or-  an adjustment to the customer’s cost basis –Brokers must report option expirations, lapses, other closing transactions

33 Your Business Without Limits™Page S Corporations >Current regulations do not require reporting to customers identified as S Corporations >Under new statute –Reporting to a S Corporation is required –Treated as a partnership, unless the S Corporation is a financial institution –Effective for securities acquired by an S Corporation after December 31, 2011 >Concern: –Current IRS Form W9 does not distinguish between S Corporations and C Corporations –Firms will need to re-solicit all corporations to identify S Corporations

34 Your Business Without Limits™Page Reporting on Transferred Securities >When an account or a covered security is transferred, the transferor must report to the transferee: –Adjusted tax basis and holding period information –Within 15 days of account transfer –Penalties will be levied for non-compliance >DTCC has a Cost Basis Reporting Service (CBRS) that allows transfer of cost basis information during the ACATS process –Most broker-dealers utilize this services –Many banks and transfer agents do not utilize this service, but they have an obligation to report adjusted basis under this new rule

35 Your Business Without Limits™Page New Requirements for Issuers >Statute imposes new reporting requirements on Issuers –Related to corporate events that affect tax-basis >Requires issuers to make a return that –Describes any organizational action which affects the tax basis in a security (e.g., stock split or merger) –Sets forth the resulting quantitative effect of the corporate action on tax basis >Due the earlier of –45 days after the corporate action occurs, or –January 15 after the end of the calendar year >Required returns and statements on corporate actions would be subject to reporting penalties

36 Your Business Without Limits™Page 36 Issuer Reporting of Corporate Actions to Nominees >Issuers are required to furnish nominee holders with a written statement –Showing the issuer’s contact information and –The return information on the corporate action –By January 15 of the following year >Treasury/IRS can waive the return and written statement requirements if –The issuer publicly discloses the required information in the form and manner to be specified in regulations –Possible ways to broadly distribute the tax information  Post on the issuer’s web site  Deliver to clearing organizations and vendors of tax information 36

37 Your Business Without Limits™Page 37 Project Management

38 Your Business Without Limits™Page 38 Project Management >Form a Steering Committee of all concerned business units >Assign a Project Manager >Analyze impact on your firm’s systems and procedures >Define requirements for all areas >Create a development plan and set priorities >Assign responsibility by area >Get management’s commitment for funding and human resources >Explore the use of outside vendors and industry utilities >Track costs associated with the project >Develop a timeline of events

39 Your Business Without Limits™Page 39 Program Overview Objectives >Define, develop and implement the functions/procedures required to satisfy all government legislation rules and regulations, for processing and reporting cost basis on 1099 B forms, for sell /exchanged transactions, for all customers that receive 1099 B reporting. These includes the following: – Capture and store the cost basis for trades purchased, securities received, or transferred into an account – Update the cost basis when required (e.g. corporate actions, partial sells, transfers, etc.) – Include cost basis on all non-trade deliveries (e.g. ACATS) – Report the cost basis on 1099 B form(s) for each sell / exchanged transaction(s), and indicate on the 1099 B the gain / loss amount and whether it is long or short.

40 Your Business Without Limits™Page 40 Program Structure Select Lot Service Anticipation / Distribution Service Static Data Cost Basis Maintenance 1099 Confirms Statements Standard Files Lot Information Inputs / Outputs Portfolio Accounting Reporting Cost Basis Reporting Program

41 Your Business Without Limits™Page 41 Areas of Focus Page 41

42 Your Business Without Limits™Page 42 Current State > Broker-dealers are required to report on an annual basis: – Gross proceeds from securities sales and exchanges to the IRS – Provide tax information statements to every customer > Present law obligates taxpayers to keep records necessary to determine tax liability, there is no explicit duty to keep basis records > Currently, we maintain cost basis for 4,200,000 accounts – Maintaining cost basis will add 1,100,000 accounts

43 Your Business Without Limits™Page Complications in Determining Adjusted Basis >Tracking multiple methods –Giving customers the option to identify specific tax lots sold or to elect an accounting method different than the broker’s default method means that brokers cannot use one method for all its customers –A taxpayer may elect different methods for shares in different funds in the same fund family >Stock splits, acquisitions and mergers –The tax disclosure on corporate actions is not uniform –The fair market value of taxable property received in an exchange is not always made available by the issuer –Foreign corporations may not provide brokers notice of the U.S. tax consequences of a corporate action in its stock

44 Your Business Without Limits™Page Complications in Reporting Adjusted Basis >Inheritance and gifts –Complicated rules apply in determining the basis of securities acquired by gift or inheritance (e.g., carryover basis, stepped-up basis and alternative valuation dates) –The legislative history indicates that brokers are not required to report adjusted basis on securities that were acquired by gift or inheritance –Treasury guidance is needed to support the legislative intent >Directly issued stock –Brokers may not know cost basis for stocks issued directly (e.g., employee stock purchase plans) –Treasury guidance needs to treat the employer or the plan administrator as a transferor required to furnish basis information when the securities are transferred

45 Your Business Without Limits™Page How Brokers-Dealers Can Prepare >Enroll in DTCC’s Cost Basis Reporting Service (CBRS) >Determine how customers will communicate elections of available tax accounting methods and specific identification of tax lots >Implement program for identifying subchapter S Corporations >Audit your system to determine whether it calculates adjusted cost basis in accordance with new reporting requirements >Map basis information to gross proceeds from sales reported on Form 1099-B >Break out short-term and long-term tax lots, covered and uncovered tax lots >Start reporting short sales on closing date rather than on open date >Develop system to account for wash sales

46 Your Business Without Limits™Page 46 What systems need to change >Security Master >New Accounts >Trading >Alternative Investment Platform >Clearance & Settlement >Margin & Cash Account Control >Corporate Actions >Custody >Mutual Funds >Performance Reporting >Tax Reporting >Customer Notifications (Trade Confirms, Statements)

47 Your Business Without Limits™Page 47 Intensity of Change Security Master >Provide any necessary updates to correctly identify security type, pay down ratios and factors >Send flags when additional information is added that impacts cost basis (i.e. new redemptions) New Accounts >Provide codes to identify: – S Corporations – Account Selling Method (FIFO, LIFO, Specific Lot) Trading >Develop capability to capture “versus purchase” text (specific lots) on sell trades, pass information to downstream systems >Display tax lot sold on the trade confirmation

48 Your Business Without Limits™Page 48 Intensity of Change -- Continued Alternative Investment Platform >Develop process to update cost basis for transactions Clearance & Settlement >Develop capability to include cost basis on non-trade related transactions – Deliveries processed through DTCC >Free receives through DTCC – set up an anticipation record to ensure that we receive cost basis

49 Your Business Without Limits™Page 49 Intensity of Change -- Continued Margin & Cash Account Control >Allow customers to select a default tax lot - FIFO, LIFO, Specific Lot >Specific Lot request requires information from the cost basis reporting system >Develop process to accurately calculate and pass cost basis for: –Partial transactions – 3rd Party transactions – Inheritance / Gifts – Retirement distributions

50 Your Business Without Limits™Page 50 Intensity of Change -- Continued Corporate Actions >Analyze impact of mergers, tender offers, bond redemptions >Reclassification of dividends >Method to capture cost information on partial corporate actions Custody >Develop capability to include cost basis on DRS transactions >Create or develop anticipation file of certificates received and cancelled awaiting cost basis from issuers/transfer agents

51 Your Business Without Limits™Page 51 Intensity of Change -- Continued Mutual Funds >Develop capability to calculate and pass cost including cancel and corrects >Pass cost basis for Direct Mutual Funds transfers >Build interfaces to receive and send cost basis from Mutual Fund companies >Build process to change from average cost to select lots >Mutual Funds and DRIPS may use the average cost method, at the broker’s election, which can be problematic Performance Reporting >Tighten controls to eliminate manual input

52 Your Business Without Limits™Page 52 Intensity of Change -- Continued Tax Reporting > Re-design 1099-B forms for tax year 2011 –Identify uncovered Lots (purchased or received before 1/1/2011) –Identify holding period (long/short term) –Report Cost Basis for each lot(s) sold / exchanged for covered and uncovered lots, by long/short term gain/loss Customer Notification > Provide any necessary changes (e.g. account selling method, distinguish between covered /uncovered lots) on monthly customer statements

53 Your Business Without Limits™Page 53 Other Considerations Page 53

54 Your Business Without Limits™Page 54 Who do we have to pass cost basis with >Broker-Dealers >Banks >Transfer Agents >Stock Plan Administrators >Issuers >Employers that use stock as a form of compensation >Mutual Fund Companies >Custody Banks >General Partners >Hedge Funds >States - escheatment

55 Your Business Without Limits™Page 55 Challenges & Questions >How will the industry handle div-re accounts >How will mutual funds pass cost basis >How to convert from average cost to individual tax lots >How to handle gifting, inheritance, third party transfers >How to identify S Corporations >Wash sales for customers with multiple accounts that are similar >Will CBRS support cost basis movements for all entities >Will all entities use CBRS >How to create and reconcile an expectation file for covered cost basis >What are we missing

56 Your Business Without Limits™Page Other Potential Issues >Is the timeline sufficient for firms to set up their systems? >Form 1099-B will need to be modified to add boxes for adjusted basis and whether the position was held long-term or short-term >The IRS will need to modify Form W-9 to include S Corporations >Firms will need to solicit Forms W-9 from all their corporate accounts to identify S Corporations >Firms will need to transfer basis information during the ACATS process and in other situations (e.g., re-registration) >How should foreign currency denominated securities be handled? >Will there be an increased need for customer service?

57 Your Business Without Limits™Page Establish Joint Committees >Broker-Dealers >Transfer Agents >Issuers

58 Your Business Without Limits™Page 58 Customer Communications Page 58

59 Your Business Without Limits™Page 59 Customer Communications Customer Education >Prepare a summary of changes and impact to customers >Identify key target dates >Develop a question and answer guide for customer review >Consider mailing frequency to ensure that the appropriate information is shared >Create a hotline for customer inquiries

60 Your Business Without Limits™Page 60 Questions? Page 60

61 © Copyright 2009 Computershare Limited. All rights reserved. Speaker: Kevin Burns Date: July 17 th, 2009 Preparing for Cost Basis Reporting A Transfer Agent’s Perspective

62 © 2008 Computershare. All rights reserved. 62 Overview  Emergency Economic Stabilization Act of 2008  Passed October 3 rd, 2008  Sec 403  Key Dates  Corporate Stock – January 1, 2011  Dividend Reinvestment Plans – January 1, 2012  Other Securities – January 1, 2013

63 © 2008 Computershare. All rights reserved. 63 Overview  Understanding the New Legislation  Established internal working groups Operations Call Centers Tax Relationship Managers Production Support/IT  Securities Transfer Association, Inc. Transfer Agents Cost Basis Group Meeting with the Department of the Treasury  Industry Cost Basis Working Committee Transfer Agents, DTCC, Brokers

64 © 2008 Computershare. All rights reserved. 64 Overview  IRS Notice  Requesting comments from all affected persons  36 questions presented for comments  Response date was March 2, 2009  IRS / Department of the Treasury  Actively working on providing clarity and guidance

65 © 2008 Computershare. All rights reserved. 65 Key Components to Consider  Transfer Agent Processing  Transfer Statement  Corporate Actions  Tax Reporting

66 © 2008 Computershare. All rights reserved. 66 Transfer Agent Processing  System Capabilities  Capture and store lot specific data Optional Cash Purchases Dividend Reinvest Employee Stock Purchases Stock Options Transfers Transfer Statements 6045A Conversion Files Exchange Agents

67 © 2008 Computershare. All rights reserved. 67 Transfer Agent Processing  Key Data Elements Acquisition Date Effective Date Adjusted Basis Original Number of Shares Current Number of Shares Source of Basis Information Covered/Uncovered indicator Reason Code Cost Basis method (FIFO,AVG)  Provide ability to select and adjust lot specific data Transfers Sells Corporate Actions

68 © 2008 Computershare. All rights reserved. 68 Transfer Agent Processing  Transfer Processing  Awaiting Guidance from Treasury on how to handle internal transfers as the reason for the transfer is unknown to the agent Gifting Death Private Sale  Shareholder ability to select specific lots for their transaction DRS Shares DRP Shares Certificated Shares

69 © 2008 Computershare. All rights reserved. 69 Transfer Agent Processing  Shareholder Communications  Call Centers Training Call Scripts Internet Applications Account access Processing  Output Transfer Packages Confirmation Statements Purchases OCP Dividend Reinvestments and DRS Transfers – External (Broker) and Internal

70 © 2008 Computershare. All rights reserved. 70 Transfer Statement  Every applicable person which transfers a covered security to a broker is required to provide a written statement no later than 15 days after the date of the transfer  Sec. 6045A.  Movements between Agents and Brokers  Deposits  Withdrawals (WT) – Fast and Non Fast  DRS Profile

71 © 2008 Computershare. All rights reserved. 71 Transfer Statement  Movements between Agents and Brokers  DWAC Deposits  DWAC Withdrawal  Restricted Shares  Industry Standardization  Cost Basis Working Committee  Centralized system to electronically pass transfer statement

72 © 2008 Computershare. All rights reserved. 72 Transfer Statement  Data Elements to be pass Acquisition Date Effective Date Adjusted Basis Original Number of Shares Current Number of Shares Source of Basis Information Covered/Uncovered indicator Reason Code Cost Basis method (FIFO,AVG) Julian Date Transfer Type DTCC Number Account and reference number

73 © 2008 Computershare. All rights reserved. 73 Corporate Actions  Broad Range of Corporate Actions  Impact on cost basis will vary by type  System needs to be flexible to make various cost basis  New Reporting Requirements – 6045B  Corporate Actions Reporting by Issuer Description of the action Effect on basis of securities Other information to be determined in forthcoming regulations Reporting required to shareholders or their nominees Provision to make basis impact “publicly available” in lieu of individual reporting – subject to IRS approval Reporting deadline: within 45 days after the action or prior to January 15 of the following calendar year

74 © 2008 Computershare. All rights reserved. 74 Tax Reporting  Form 1099-B  Additional boxes required Adjusted Basis Gain / Loss Short Term / Long Term  Form filing deadline extended to February 15 Extension applies only to Form 1099-B or consolidated statements that include Form 1099-B  Check/Stub Attached Current cost saving opportunity May not be feasible going forward due to wash sale adjustments


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