How is cost basis tax reporting changing?
For the first time, the IRS is requiring financial institutions to report cost basis information to the IRS on tax forms. For shares purchased and subsequently redeemed after January 1, 2012, also referred to as covered shares, OppenheimerFunds will track and report cost basis information on IRS Form 1099-B. Your own tax filing deadline will not be affected as a result of this change.
What are “covered” shares?
Shares purchased after January 1, 2012 are referred to as “covered” shares, and are impacted by these changes in reporting. Cost basis reporting by financial institutions is not required for shares purchased prior to January 1, 2012 (called “uncovered” shares).
How will OppenheimerFunds calculate my cost basis?
The Average Cost tax reporting method will be the default cost basis tax reporting method on your account(s) with OppenheimerFunds, unless you specify otherwise. You or your financial advisor may provide standing instructions for your chosen cost basis tax reporting method via telephone, via our website, oppenheimerfunds.com, or in writing. We strongly recommend that you work with your financial advisor to determine the cost basis tax reporting method that best suits your needs.
If I want to change my reporting method from Average Cost, which methods of cost basis tracking will OppenheimerFunds accommodate?
We will accommodate any of the following methods of cost basis tracking:
- Average Cost: Shares are redeemed at the Average Cost of all covered shares in the account at the time of the redemption. Specific IRS restrictions apply to changing to and from Average Cost. As mentioned earlier, Average Cost will be the default cost basis tax reporting method on your account(s) with OppenheimerFunds.
- First-In First-Out (FIFO): Shares purchased first are redeemed first.
- Highest-In First-Out (HIFO): Shares with the highest cost are redeemed first.
- Last-In First-Out (LIFO): Shares purchased last are redeemed first.
- Low Cost: Shares with the lowest cost are redeemed first.
- Specific Share Identification: Shares are redeemed in the order specified at the time of the redemption. We can provide transactional reporting on this method but specific share identification cannot be used as a standing method on your account(s).
For each account you hold with us, you have until the time of your first redemption of covered shares to change your tax reporting method from Average Cost. Once you redeem any covered shares, we will report that sale of covered shares to the IRS using Average Cost, or the standing reporting method on file.
How will this affect my Automatic Withdrawal or Exchange Plan?
If assets are systematically redeemed or exchanged out of your account(s), we will default to using the standing reporting method instructions currently on file. If no instructions are on file, we will default to the Average Cost method.
Will I receive one Average Cost figure for covered and uncovered shares?
No. Even if you use the Average Cost tax reporting method for both uncovered and covered shares, cost basis reporting on uncovered and covered shares will be separate.
Will I still need to include uncovered share amounts when reporting my cost basis information to the IRS?
Yes. While we will not report cost basis information for uncovered shares on Form 1099-B, you will still be required to report this cost basis information to the IRS. Please consult a qualified tax advisor for any questions about how your own tax returns will need to be filed.
If I have multiple account types through OppenheimerFunds, such as a trust account, a sole owner account and a joint tenancy account, will all of these use the same reporting method?
We will default your accounts using a uniform “blanket election”, meaning that all accounts held in your name as well as those where you are allowed to negotiate will be subject to the same reporting method. For example, if you are the trustee of a trust and own a sole owner nonretirement account, both of these accounts will default to your standing instructions. Should you choose to do so, you may instruct us to use different methods for each account that you are allowed to negotiate.
How will exchanges from existing accounts into new accounts be handled?
New accounts opened via an exchange will use the cost basis tax reporting method that was in place in the existing account, unless you instruct us otherwise. New accounts opened via an exchange from a money market fund will default to the Average Cost method, unless we are otherwise instructed. For new accounts opened via a new account application, these accounts will default to Average Cost, unless another method is indicated on the new account application.
Are shares purchased on or after January 1, 2012 with reinvested capital gains and dividends considered covered shares?
Yes, since these shares are purchased after the IRS regulations take effect, they are considered covered shares, even if the reinvested dividends and capital gains were earned on uncovered shares.
Where else may I find answers to my questions?
The IRS’ website contains information on changes to cost basis reporting. Please visit www.irs.gov for additional information.
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