Cost Basis

To our Customers:

As you may know, the IRS has mandated requirements for clearing broker-dealers, such as Pershing LLC, to provide cost basis information for covered securities on the 1099 tax reporting forms that are sent out in the early part of each year.

Beginning in 2011, various types of securities phased in reporting requirements and became “covered.” In 2014 certain bonds are now covered by these requirements.  This means that bonds purchased, or otherwise acquired by you, after 1/1/2014 are now covered by the reporting requirements.

Along with cost basis tracking, the IRS requires specific ways that bond premiums and bond discounts are reported by Pershing.  Below is a brief summary of the way covered bond holdings will be handled:

Bond type and premium/discount status IRS required accrual method Your options
Tax-free bonds purchased at a premium The premium is amortized to the yield-to-worst date using the constant yield/scientific method No changes allowed
Taxable bonds purchased at a premium The premium is amortized to the stated maturity using the constant yield/scientific method. You may opt out of amortizing taxable bond premiums.  If you opt out the total premium will be reported when the bond is disposed.
 All bonds purchased at a discount

Accretion Calculation

The default is to accrete the discount on a straight line/ratable basis.

Accretion Method

The default is to NOT include market discount accretion annually as income.  The accrual will be realized as income upon disposal.

Accretion Calculation

You may opt for the constant yield/scientific calculation.

Accretion Method

You may opt to include market discount accretion on an annual basis as income.

The IRS required default method for amortizing premiums for taxable bonds and accreting discounts for all types of bonds may differ from the method you prefer.  We do not provide tax advice; however, we do recommend that you consult with your tax professional regarding the options allowed.  If you would like to make any changes, please complete a cost basis change form and return to us by September 30, 2014.

Please contact your Investment Specialist if you have any questions about the options available.  

As always, we greatly appreciate the opportunity to assist with your investment needs.

Sincerely yours, 

Eric Bederman
Chief Operating Officer

Download Change Form Here