New IRS Rules That May Affect Your Investments

The IRS has established new tax reporting requirements for broker-dealers (including mutual fund companies and other custodians of financial assets) that will begin in January 2011.

For most securities purchased and sold on or after January 1, 2011, broker-dealers will be required to report cost basis information to the IRS on Form 1099-B, as well as whether the holding periods for the transacted securities were short-term or long-term in nature.

While you may currently receive cost basis information on the supplemental pages of your year-end Consolidated Tax Statement, your financial institution has not previously provided this information to the IRS.  These new rules were established as part of the Emergency Economic Stabilization Act of 2008.  The objective of the new regulations is to help ensure that investors accurately report realized gains and losses on securities in their annual tax filings.

Please note that this expanded reporting requirement for financial institutions does not change or mitigate any responsibilities you have to accurately report realized gains and losses on your annual tax return.  We view these changes as positive because they should vastly simplify the chore of finding and reporting cost basis information each year in which securities are sold.

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