The Emergency Economic Stabilization Act of 2008 requires brokerage firms and mutual fund companies to comply with new IRS cost basis tax reporting rules. The legislation goes into effect over a four-year period, during which "specified securities" become "covered" under the legislation in phases. The legislation defines the specified securities and their covered/non-covered status according to the following implementation schedule:
| Security Type | Non-Covered Shares | Covered Shares |
|---|---|---|
| All stock held in a corporation, except that for which average cost is permissible. | Lots purchased prior to January 1, 2011 | Lots purchased on or after January 1, 2011 |
| Any stock for which average cost is permissible. This includes registered investment companies (including open-ended mutual funds, closed-ended mutual funds, and certain exchange-traded funds) and shares of stock acquired in connection with dividend reinvestment plans (DRIPs). | Lots purchased prior to January 1, 2012 | Lots purchased on or after January 1, 2012 |
| Options, rights, warrants and other financial instruments as the IRS deems appropriate, which might include, but are not limited to fixed income instruments, and any type of contract tied to commodities. | Lots purchased prior to January 1, 2014 | Lots purchased on or after January 1, 2014 |
Shares of specified securities are subject to the following reporting requirements based on their covered or non-covered status:
Covered Shares
Brokerage firms and mutual fund companies must report gains and losses, adjusted cost basis, gross proceeds, and holding period (short-term or long-term) of sold positions on IRS Form 1099-B.
Non-Covered Shares
Brokerage firms and mutual fund companies are not responsible for reporting cost basis of sold positions to the IRS.
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