Understanding the difference
between “covered” and
“noncovered” securities
Federal Cost Basis Reporting Regulations (“Regulations”) are taking effect over a three-year phase-in period
that began in 2011. During this period, different types of securities have and will become “covered” and subject
to new 1099-B cost basis reporting to the IRS. The phase-in of the various types of securities is as follows:
··Equities (including foreign securities and ADRs) – January 1, 2011
··Mutual Funds – January 1, 2012
··Fixed Income, Options and Structured Notes – January 1, 2013
Brokerage firms are required to report gross proceeds from sales and dispositions for cash for “covered” and “noncovered”
securities. For “covered” securities, brokerage firms are also required to report the following information on Form 1099-B:
··Adjusted basis of the tax lots sold
··Acquisition date of the tax lots sold
··Classification of any gain or loss as short-term or long-term
For the 2011 tax year, the IRS has introduced the new Form 8949 that you must complete and attach to Schedule D when
filing your tax return.
“Covered” Securities
A “covered” security refers to a security you have purchased on or after the effective date (above) or to a security that
has been transferred to your account from an account in which the security was already “covered.” As required by the
Regulations, when you sell covered securities we will report to the IRS not only the gross proceeds from the
sale, but also the cost basis, the date of acquisition and whether any gain or loss with respect to such
securities is long-term or short-term.
Example of a “Covered” Transaction
John Q Customer purchased ABC Inc. stock on 04/21/11 and subsequently sold the position on 05/25/11. Since ABC Inc.
stock is an equity purchased on or after January 1, 2011, it is “covered” under the new cost basis legislation. As a result,
the cost basis for ABC Inc. stock is IRS-reportable and is listed in the “Covered Transactions” section of the Tax Reporting
Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered
broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation.
Investment products:
Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value
Account No.
Taxpayer No.
123-96000
XXX-XX-6789
Page
9 OF 25
JOHN Q CUSTOMER
2011 TAX REPORTING STATEMENT
The Capital Gain and Loss Transaction section is provided to facilitate your review and the preparation of your tax return. In calculating gain (loss), unless otherwise noted, it was assumed that the oldest position was liquidated
first, and that an election was in effect to amortize the premium paid on the purchase of taxable bonds. The gain (loss) information may not include return of capital, sales load deferral or wash sales adjustments. RICs (which
may include mutual funds and unit investment trusts) may reclassify principal distributions as capital gains. The Cost Basis for these securities may not have been adjusted on your statement to reflect such reclassifications.
Please refer to information provided by the RIC and discuss with your tax advisor. Securities distributed from a retirement account reflect the tax basis on the date of distribution. Other methods for calculating gain (loss) are
available. The cost basis for most Original Issue Discount (“OID”) obligations includes the accretion of OID. For purposes of allocating original purchase price to the components of an equity unit consisting of a purchase contract and a debt security subject to a remarketing event, we assumed that the fair market value of the debt security on purchase date was equal to its adjusted issue price. The difference between your original cost and the
amount allocable to the debt component was allocated to the purchase contract. In making adjustments to the cost basis of the purchase contract, it was assumed that the unit holder included contract adjustment payments in
income when received. Data from Forms 1099 (reportable Dividend and Interest) is also repeated in this summary for your convenience. Additionally, we have included items such as margin interest and select account fees if
applicable. Please discuss the deductibility of these items with your tax advisor. For select clients, we have also included a summary of Visa charges and checking activity.Merrill Lynch is neither a tax return preparer or tax
advisor. Please see your tax advisor for more information.
Statement, as indicated below. You will use information provided in this section of the Tax Reporting statement to complete
Part I of Form 8949. Specifically for “covered” securities with basis reported to the IRS, you will check box (A) and list the
transaction details in the appropriate columns of the Form 8949. (See the section “Completing Form 8949.”)
1099-B
Quantity
Transaction
Description
Date Acquired
Cover of Short
2011 PROCEEDS FROM BROKER AND BARTER EXCHANGE TRANSACTIONS
Date Liquidated
Short Sale
Amount
Cost Basis
Adjustments
Gain or (Loss)
35,500.22
35,008.95
0.00
491.27
2,356.40
3,546.80
5,903.20
0.00
0.00
0.00
0.00
0.00
0.00
2,356.40
3,546.80
5,903.20
41,403.42
35,008.95
0.00
6,394.47
0.00
(92.02)
(OMB 1545-0715)
Remarks
SHORT TERM CAPITAL GAINS AND LOSSES
COVERED TRANSACTIONS
APPLE
ABC Inc.INC
100.0000
Sale
ABC Materials
Inc.
APPLIED
MATERIAL
INC
10.2673
Sale
10.7613
Sale
Security Subtotal
CUSIP Number
04/21/11
037833100
05/25/11
CUSIP Number
02/02/11
06/29/11
038222105
02/02/11
06/29/11
Covered Short Term Capital Gains and Losses Subtotal
NONCOVERED TRANSACTIONS
COCA COLA INC
10.0000
Sale
“Noncovered”
Securities
NEW YORK CITY SER D
FULLY RFD REF OID PRF 04
CUSIP Number
12/19/10
Account No.
456789123
11/03/11 123-96000
CUSIP Number
64966BA78
Taxpayer No.
408.20
500.22
XXX-XX-6789
Page
9 OF 25
Securities
purchased
MAR
93 06.000%MAR15
28prior to the effective date (above) are considered “noncovered,” for which we will report only the gross
JOHN
Q CUSTOMER
10000.0000
Redemption
12/24/10
04/01/11
5,075.00
5,300.00
0.00
(225.00)
proceeds to the IRS. Equities purchased prior to2011
January 1, 2011, mutual funds purchased prior to January 1, 2012, and
NEW YORK ST EGY RESH DEV
CUSIP Number
64984EBH7 TAX REPORTING STATEMENT
OID
PFR
04
other
securities—i.e.,
fixed
options
andandstructured
notes—purchased
prior
tootherwise
January
2013
will be
The ATRV
Capital
GainAMBAC
and Loss AMT
Transaction
sectionincome,
is provided to facilitate
your review
the preparation of your
tax return. In calculating gain (loss),
unless
noted, 1,
it was
assumed are
that theand
oldest position
was liquidated
93 an
06.000%MAR15
28 to amortize the premium paid on the purchase of taxable bonds. The gain (loss) information may not include return of capital, sales load deferral or wash sales adjustments. RICs (which
first,MAR
and that
election was in effect
Redemption
12/24/10
03/15/11
10,100.00(c)
0.00
0.00 to reflect
(L) such
may10000.0000
include mutual
funds
and unit investmentAny
trusts) may
reclassify
distributions as
capital gains.
The Cost
Basis for these
securities
may not have been
adjusted
on your
considered
“noncovered.”
sale
ofprincipal
a security
that
is 10,100.00
not
considered
“covered”
will
still
bestatement
included
onreclassifications.
the tax
Please refer to information provided by the RIC and discuss with your tax advisor. Securities
distributed
the tax basis
are
Account
No. from a retirement account reflect
Taxpayer
No. on the date of distribution. Other methods for calculating gain (loss)
Page
THORNBURG
MTG
COM
CUSIP
Number
885218107
available.
The cost
basisINC
for most
Original
Issue Discount
(“OID”)
obligations
includes
the accretion
of OID.
For cost
purposes of
allocating amount
original purchasewill
price tonot
the components
of an equity unit consisting
of a purchase
conreporting
statement
with
its10/23/10
adjusted
cost
basis
but
the
basis
be transmitted
to the
IRS.
123-96000
XXX-XX-6789
9 OF
25
tract1000.0000
and a debt security
subject to a remarketing event,
we assumed that the09/28/11
fair market
value of the debt
security on purchase date
was equal to its adjusted issue
between your original cost
and the
Sale
28,935.57
27,692.03
0.00 price. The difference
1,243.54
amount allocable to the debt component was allocated to the purchase contract. In making adjustments to the cost basis of the purchase contract, it was assumed that the unit holder included contract adjustment payments in
income when received.
Data from Forms 1099 (reportable
Dividend and Interest) is also repeated in this summary for your convenience. Additionally, we have included items such as margin interest and select account fees if
Example
of a “Noncovered”
Transaction
11landcor113011.qxp
applicable.
Please discuss the deductibility of these items with your tax advisor. For select clients, we have also included a summary of Visa charges and checking activity.Merrill Lynch is neither a tax return preparer or tax
advisor. Please see your tax advisor for more information.
Q CUSTOMER
John QJOHN
Customer
purchased XYZ Inc. stock on 12/19/10 and subsequently sold the position on 11/03/11. Since XYZ Inc.
1099-B
2011 PROCEEDS
FROM BROKER
AND BARTER EXCHANGE TRANSACTIONS
(OMB 1545-0715)
2011 TAX REPORTING
STATEMENT
stock was acquired
prior to theDate
effective
January 1, 2011, the
cost basis will not be reportable to the IRS and
Transaction
Acquireddate
Dateof
Liquidated
The Capital
Gain and Loss
Transaction section is provided
to facilitate
your review
the preparation of your
tax return. In calculating
(loss), unless
otherwise noted, itGain
was assumed
that the
oldest position was liquidated
Quantity
Description
Cover
of Short
Shortand
Sale
Amount
Cost gain
Basis
Adjustments
or (Loss)
Remarks
and that
election
was in effect to amortizeTransactions”
the premium paid on the section
purchase of taxable
bonds.Tax
The gain
(loss) information
may not include return
capital, sales loadbelow.
deferral or wash
adjustments.
RICs (which
is first,
listed
inanthe
“Noncovered
of the
Reporting
Statement,
asofindicated
Yousales
will
use details
may
includeTERM
mutual funds
and unitGAINS
investment
trusts)LOSSES
may reclassify principal distributions as capital gains. The Cost Basis for these securities may not have been adjusted on your statement to reflect such reclassifications.
SHORT
CAPITAL
AND
Please refer to
information
provided by the
RIC
and discuss
with your tax advisor.
Securities distributed
from
a retirement account
reflect
the
tax basis8949.
on the dateSpecifically
of distribution. Other methods
for calculating gain (loss) are
provided
in
this
section
of
the
Tax
Reporting
statement
to
complete
Part
I
of
Form
for
“noncovered”
COVERED
TRANSACTIONS
available.
The cost
basis for most Original Issue Discount (“OID”) obligations includes the accretion of OID. For purposes of allocating original purchase price to the components of an equity unit consisting of a purchase contract and a debt security subject to a remarketing event, we assumed that the fair market value of the debt security on purchase date was equal to its adjusted issue price. The difference between your original cost and the
securities
basis is not reported
the
IRS, you will check box (B) and list the transaction details in the appropriate
APPLEallocable
INC into which
Numberto
037833100
amount
the debt component was allocatedCUSIP
to the purchase
contract.
In making adjustments to the cost basis of the purchase contract, it was assumed that the unit holder included contract adjustment payments in
100.0000
04/21/11
05/25/11
35,008.95
0.00 items such as491.27
income
when received.Sale
Data from Forms 1099 (reportable
Dividend and Interest)
is also repeated in this 35,500.22
summary for your convenience.
Additionally, we have included
margin interest and select account fees if
columns
of
the
Form
8949.
(See
the
section
“Completing
Form
8949.”)
applicable. Please discuss the deductibility of these items with your tax advisor. For select clients, we have
also included
a summary of Visa charges and checking activity.Merrill Lynch is neither a tax return preparer or tax
advisor.
Please
see your tax
APPLIED
MATERIAL
INCadvisor for more information.
CUSIP Number
10.2673
10.7613
1099-B
Sale
Sale
Security Subtotal
Transaction
Quantity
Description
Covered Short Term Capital Gains and
038222105
02/02/11
02/02/11
2,356.40
0.00
0.00
2,356.40
06/29/11
06/29/11
3,546.80
0.00 EXCHANGE
0.00TRANSACTIONS
3,546.80
2011
PROCEEDS FROM
BROKER AND BARTER
5,903.20
0.00
0.00
5,903.20
Date Acquired
Date Liquidated
Cover of Short Short Sale
Amount
Cost Basis
Adjustments
Gain or (Loss)
Losses Subtotal
41,403.42
35,008.95
0.00
6,394.47
SHORT TERM CAPITAL GAINS AND LOSSES
NONCOVERED TRANSACTIONS
COVERED TRANSACTIONS
COCA
CUSIP Number
XYZ
Inc.COLA INC
APPLE
INC
CUSIP Number
10.0000
Sale
12/19/10
100.0000
Sale
04/21/11
XYZ
CITY
SERCITY
D SER D
NEW
YORK
CUSIP Number
APPLIED
INCPRF 04
CUSIP Number
FULLY MATERIAL
RFD REF OID
10.2673
Sale
02/02/11
MAR
93 06.000%MAR15
28
10.7613
Sale
06/29/11
10000.0000
Redemption
12/24/10
Security Subtotal
NEW YORK ST EGY RESH DEV
CUSIP Number
Covered
Term
Capital
Gains and Losses Subtotal
ATRV
OIDShort
AMBAC
AMT
PFR 04
MAR 93 06.000%MAR15 28
NONCOVERED
TRANSACTIONS
10000.0000
Redemption
12/24/10
456789123
037833100
11/03/11
05/25/11
64966BA78
038222105
02/02/11
06/29/11
04/01/11
408.20
35,500.22
500.22
35,008.95
0.00
0.00
(92.02)
491.27
2,356.40
3,546.80
5,075.00
5,903.20
0.00
0.00
5,300.00
0.00
0.00
0.00
0.00
0.00
2,356.40
3,546.80
(225.00)
5,903.20
41,403.42
35,008.95
0.00
6,394.47
03/15/11
10,100.00
10,100.00(c)
0.00
0.00
12/19/10
10/23/10
11/03/11
09/28/11
408.20
28,935.57
500.22
27,692.03
0.00
0.00
(92.02)
1,243.54
CUSIP Number
10/23/10
885218107
09/28/11
28,935.57
27,692.03
0.00
1,243.54
64984EBH7
New
Form
8949
and changesCUSIP
to Schedule
D for the 2011 tax year
COCA
COLA INC
CUSIP
Number
456789123
THORNBURG
MTG INC COM
Number
885218107
10.0000
1000.0000
Sale
Sale
(OMB 1545-0715)
Remarks
(L)
ForNEW
taxYORK
year
2011, the IRS has CUSIP
created
the new
Form 8949 that must be completed and attached to Schedule D. In
CITY SER D
Number
64966BA78
11landcor113011.qxp
FULLY
RFD
REF OID
PRF 04has made changes to the Proceeds from Broker and Barter Exchange Transactions sections of the
addition,
Merrill
Lynch
MAR 93 06.000%MAR15 28
10000.0000
Redemption
04/01/11
5,075.00
5,300.00
0.00
Tax Reporting
statement.
It now12/24/10
includes a consolidated
gross
proceeds and
gain/loss section
that(225.00)
segregates short-term
NEW YORK ST EGY RESH DEV
CUSIP Number
64984EBH7
gainsATRV
and
gains
OIDlong-term
AMBAC AMT PFR
04 as either “covered” or “noncovered” transactions. The information in this new section will provide
MAR 93 06.000%MAR15 28
you with
the necessary
to complete
You should 10,100.00(c)
complete Form 0.00
8949 before 0.00
completing
Schedule D.
10000.0000
Redemption information
12/24/10
03/15/11Form 8949.
10,100.00
(L)
THORNBURG MTG INC COM
1000.0000
Sale
11landcor113011.qxp
The IRS has also made major revisions to Schedule D, which now acts as a summary of all capital gain and loss
transactions. You are required to list the individual sale transactions on Form 8949. If the gain or loss is short-term,
the gain or loss should be included on Part I of Form 8949. If the gain or loss is long-term, the gain or loss should be
reported on Part II of Form 8949. You may need to attach multiple copies of Form 8949 to Schedule D to reflect different
transaction types during the 2011 tax year. A separate Form 8949 is required for gains and losses if you:
··Have the basis reported on the Form 1099-B you received
··Do not have the basis reported on Form 1099-B
··Did not receive a Form 1099-B
Completing Form 8949
Part I of Form 8949 is broken out into columns (a) through (g). The illustration below shows where you can obtain the
required information needed to complete this form. For “covered” securities, the information may all be obtained from
Form 1099-B. You can indicate which category your gains and losses fall under by checking either box (A), (B) or (C) on
Form 8949. You will need to include on each Form 8949 only those transactions described in the text for the box you check;
i.e., either (A), (B) or (C). If you have more than one type of transaction and otherwise would have checked multiple boxes,
a separate Form 8949 is required for each type. For example, if you check box (A) in Part I of the Form 8949, you will need
to include only short-term gains and losses from “covered” transactions. If you check box (B) in Part I of the Form 8949, you
will need to include only short-term gains and losses from “noncovered” transactions.
Form
8949
Department of the Treasury
Internal Revenue Service (99)
Sales and Other Dispositions of Capital Assets
2011
▶ See Instructions for Schedule D (Form 1040).
more information about Form 8949, see www.irs.gov/form8949
▶ Attach to Schedule D to list your transactions for lines 1, 2, 3, 8, 9, and 10.
▶ For
Name(s) shown on return
Part I
OMB No. 1545-0074
Attachment
Sequence No. 12A
Your social security number
Example A. Employee
123 45 6789
Short-Term Capital Gains and Losses—Assets Held One Year or Less
Note: You must check one of the boxes below. Complete a separate Form 8949, page 1, for each box that is checked.
*Caution. Do not complete column (b) or (g) until you have read the instructions for those columns (see the Instructions for Schedule
D (Form 1040)). Columns (b) and (g) do not apply for most transactions and should generally be left blank.
X (A) Short-term transactions reported on
Form 1099-B with basis reported to the IRS
1
(a)
Description of property
(Example: 100 sh. XYZ Co.)
20.0000 shares ABC Co.
(B) Short-term transactions reported on Form
1099-B but basis not reported to the IRS
(b)
Code, if any,
for column (g)*
(c)
Date acquired
(Mo., day, yr.)
(d)
Date sold
(Mo., day, yr.)
(e)
Sales price
(see instructions)
04-05-11
04-25-11
940.97
Trade Date on
Form 1099-B
Quantity and
Description on
Form 1099-B
(C) Short-term transactions for which
you cannot check box A or B
Date of Purchase
as reflected on
Form 1099-B and
Trade
Confirmation
(f)
(g)
Cost or other basis
Adjustments to
(see instructions) gain or loss, if any*
991.00
Cost Basis on
Confirmation and
Form 1099-B
Gross Proceeds on
Form 1099-B
Form 8949 is used to list all of your capital gain and loss transactions; the subtotals from this form are then carried over
to Schedule D (Form 1040), where gain or loss is calculated in the aggregate.
Completing Your Schedule D
Schedule D has been revised for tax year 2011, and is now a summation of short- and long-term capital gains and losses
from Form(s) 8949. You will need to complete Form 8949 first, and then carry over the subtotals from Form(s) 8949 column
(e) Sales Price and column (f) Cost or Other Basis to Schedule D column (e) and (f). You may then calculate column (h) of
Schedule D by combining columns (e), (f) and (g).
SCHEDULE D
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Part I
OMB No. 1545-0074
Capital Gains and Losses
▶
Attachment
Sequence No. 12
Your social security number
Example A. Employee
123 45 6789
Short-Term Capital Gains and Losses—Assets Held One Year or Less
Complete Form 8949 before completing line 1, 2, or 3.
This form may be easier to complete if you round off cents to
whole dollars.
1 Short-term totals from all Forms 8949 with
checked in Part I . . . . . . . . . .
2 Short-term totals from all Forms 8949 with
checked in Part I . . . . . . . . . .
3 Short-term totals from all Forms 8949 with
checked in Part I . . . . . . . . . .
box
. .
box
. .
box
. .
A
.
B
.
C
.
(e) Sales price from (f) Cost or other basis
Form(s) 8949, line 2,
from Form(s) 8949,
line 2, column (f)
column (e)
940.97
(
991.00
(g) Adjustments to
gain or loss from
Form(s) 8949,
line 2, column (g)
(h) Gain or (loss)
Combine columns (e),
(f), and (g)
(50.03)
)
(
)
(
)
(50.03)
4 Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824 .
5 Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from
Schedule(s) K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover
Worksheet in the instructions
. . . . . . . . . . . . . . . . . . . . . . .
7 Net short-term capital gain or (loss). Combine lines 1 through 6 in column (h). If you have any
long-term capital gains or losses, go to Part II below. Otherwise, go to Part III on the back
. . .
Part II
2011
Attach to Form 1040 or Form 1040NR. ▶ See Instructions for Schedule D (Form 1040).
▶ Use Form 8949 to list your transactions for lines 1, 2, 3, 8, 9, and 10.
4
5
6
(
)
7
Long-Term Capital Gains and Losses—Assets Held More Than One Year
Complete Form 8949 before completing line 8, 9, or 10.
This form may be easier to complete if you round off cents to
whole dollars.
(e) Sales price from (f) Cost or other basis
Form(s) 8949, line 4,
from Form(s) 8949,
line 4, column (f)
column (e)
(g) Adjustments to
gain or loss from
Form(s) 8949,
line 4, column (g)
8 Long-term totals from all Forms 8949 with box A
(
)
checked in Part II
. . . . . . . . . . . .
9 Long-term totals from all Forms 8949 with box B
(
)
checked in Part II
. . . . . . . . . . . .
10 Long-term totals from all Forms 8949 with box C
(
)
checked in Part II . . . . . . . . . . . . .
11 Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or (loss)
from Forms 4684, 6781, and 8824 . . . . . . . . . . . . . . . . . . . . . .
11
12 Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1
12
13 Capital gain distributions. See the instructions . . . . . . . . . . . . . . . . . .
14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover
Worksheet in the instructions
. . . . . . . . . . . . . . . . . . . . . . .
15 Net long-term capital gain or (loss). Combine lines 8 through 14 in column (h). Then go to Part III on
the back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
For Paperwork Reduction Act Notice, see your tax return instructions.
Cat. No. 11338H
(h) Gain or (loss)
Combine columns (e),
(f), and (g)
14 (
)
15
Schedule D (Form 1040) 2011
For additional questions, please contact your Financial Advisor.
The case studies presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only and intended to demonstrate the capabilities of
Merrill Lynch and/or Bank of America. They are not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results
will vary, and no suggestion is made about how any specific solution or strategy performed in reality.
Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local
tax penalties. Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions
or arrangements that may have tax, accounting or legal implications with their personal professional advisors.
© 2012 Bank of America Corporation. All rights reserved. | ARI2K2R0 | SHEET-03-12-1175 | L-04-12 | Code 470040PM-0412 | 10% post-consumer content.