New IRS regulations require us to determine and report the cost basis of certain shares you acquire on or after January 1, 2012 in your taxable account(s). Generally, these shares are considered covered shares. As required by these regulations, we will determine the basis of your covered shares in accordance with our default accounting method, average cost, (unless you elect a different permissible method) and report this information to you and the IRS when covered shares are sold.

What is cost basis?

Generally, cost basis is the price you paid to acquire shares, including any shares you acquire by reinvesting dividends and capital gains.  When shares are sold, the gain or loss on your investment is the difference between the cost basis of the shares sold and the sales price.

 

What do I need to do?

We have selected Average Cost as our default accounting method for covered shares.  Using this method the average price you paid to acquire shares is your cost basis and the shares you acquire first are recorded as sold first. You do not need to take action if you would like us to determine the cost basis of your covered shares using the Average Cost method.  However, if you would like us to determine the cost basis of your covered shares using a method other than Average Cost, you may elect one of the cost basis methods below.

           

• FIFO (First-In, First-Out) – The shares you acquire first are recorded as sold first
• LIFO (Last-In, First-Out) – The shares you acquire last are recorded as sold first.
• HIFO (Highest-In, First-Out) – The shares you own with the highest cost are recorded as sold first
• Low Cost – The shares you own with the lowest cost are recorded as sold first
• Specific Share Identification – The shares you specify are recorded as sold.  If shares are not specified, then FIFO is used.

 

To elect a different cost basis method, you may download and print the Cost Basis Election Form or call us to request this form. If you would like to elect a method other than Average Cost, please return the form as soon as you decide, but no later than the first redemption, exchange, transfer, or other disposition of covered shares.

 

What should I expect?

Starting in 2012, your account will maintain separate cost basis calculations: one for noncovered shares (shares acquired prior to January 1, 2012) and another for covered shares (shares acquired on or after January 1, 2012). We will determine the cost basis of noncovered shares using the Average Cost method and provide this information as a courtesy to you, when available.  The cost basis of covered shares will be determined using our default accounting method, unless you have elected a different method for covered shares.

 

When shares are redeemed, exchanged, transferred, or disposed of from your account, noncovered shares will be depleted before covered shares, unless you specify otherwise.  For your taxable accounts, we will provide you with IRS Form 1099-B reporting the cost basis of noncovered shares (if available) and covered shares.  The cost basis information we provide for noncovered shares is provided as a service and you are not required to use this information.  However, the cost basis information we provide for covered shares will be reported to the IRS and you are required to use this information when preparing your individual income tax return.

 

Understanding cost basis can be difficult. To determine which cost basis method is appropriate for your tax situation, please consult a qualified tax professional.  We are also here to help but do not provide tax advice.  Please call us at 800.392.CORE (2673) for assistance.