2012 Widely Held Fixed Investment Trust (WHFIT) Guide

Transcription

2012 Widely Held
Fixed Investment
Trust (WHFIT) Guide
The purpose of this 2012 Tax Guide supplement is to inform you of
the Internal Revenue Service (IRS) regulations for Widely Held Fixed
Investment Trusts (WHFITs).
Outside the realm of income reclassification, the Internal
Revenue Service (IRS) has implemented additional regulations
that will cause a material difference between the cash receipts
shown on your 2012 monthly statements and your final 2012
1099 Consolidated Reporting statement.
If you were invested in any of the following securities listed
below you may see supplemental information appear on
your 2012 1099:
§§ Unit investment trusts organized as grantor trusts
§§ Royalty trusts
§§ Commodity trusts
§§ Holding Company Depositary Receipts (HOLDRs) trusts
§§ Mortgage backed pass-through pools
As defined by the IRS, these securities are structured as
grantor trusts—portfolios where you hold the underlying
assets, otherwise known as “direct ownership”—which,
under the Widely Held Fixed Investment Trust (WHFIT)
regulations, change the way you recognize income,
expenses and gains. In an effort to reduce further gaps in
income reporting, the IRS requires you to be liable for taxes
on your share of income and proceeds received by these
grantor trusts, regardless of whether these distributions
were paid to you.
Definition
A WHFIT is a trust that purchases a fixed portfolio of
assets for the life of the trust and issues units in the trust
to investors. WHFITs are divided into two major subcategories: Non-Mortgage Widely Held Fixed Investment
Trusts (NMWHFITs) and Widely Held Mortgage Trusts
2 2012 WIDELY HELD FIXED INCOME TRUST (WHFIT) GUIDE
(WHMTs). NMWHFITs primarily include unit investment
trusts organized as grantor trusts, royalty trusts,
commodity trusts, and Holding Company Depositary
Receipts (HOLDRS) trusts. Widely Held Mortgage Trusts
are WHFITs whose underlying assets consist of but are
not limited to mortgages, regular interests in a Real Estate
Mortgage Investment Conduit (REMIC) and interests in
another WHMT. These include mortgage-backed pass
through pools issued by the Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Government National Mortgage
Association (GNMA).
Reason for Change in Reporting
Grantor trusts identified by the IRS as WHFITs are
pass-through investments for tax purposes, and involve
three major stakeholders:
1. Trustees (the institutions who manage the trust)
2. Middlemen (the broker/dealers who hold the trust on
your behalf)
3. You, the beneficial owner, who is also known as a trust
interest holder (TIH)
While income earned by the trust flows through to
you, trustees appointed to maintain the trust are not
in direct contact with you since your portfolio is held
by LPL Financial. Therefore, information regarding any
taxable income recognized by the trust previously could
not be communicated to you and, as a result, could not
be reported to the IRS. To account for this, the WHFIT
regulations require trustees to share this tax information
with broker/dealers like LPL Financial, and for broker/
dealers to report these tax liabilities to you and the IRS.
The Requirements
Sections 1.671-5(d) and (e) of the Income Tax Regulations
require LPL Financial to file a Form 1099 with the IRS
and to furnish an additional tax information statement
to you for those trust interests LPL Financial holds on
your behalf. LPL Financial is responsible for including in
the summary totals of the 1099s all gross income and
proceeds collected by the trust and allocated to you on a
pro rata basis. The income is grossed up to account for
expenses and/or fees. This includes but is not limited
to interest, dividend and miscellaneous income, such as
rental and royalty payments. Principal repayments (where
you received part of your investment back) will now also
be reported on Form 1099-B.
Proceeds from each sale of an asset will be reported once
the trust receives payments on the underlying assets,
and not when the payments are distributed to you. This
is known as “receipt-based” reporting, which differs
from the “distribution-based” reporting approach taken in
previous years. In some cases, such as with commodity
trusts, no distributions are paid to you, as the proceeds
recognized from selling assets are used to pay the
expenses of the trust.
This receipt-based reporting is accompanied by a ratio that
tells you what portion of your current basis in the trust is
applied to the proceeds for gain/loss reporting. This ratio,
known as a “Cost Basis Allocation Factor,” will appear
on Form 1099-B, and will assist you in determining your
adjusted cost basis. A “Transaction Type” column will also
appear to indicate the type of event that occurred. If you
were invested in a NMWHFIT, you will find this information
broken out in a new section added to the 1099-B titled
“Principal Payments From Non-Mortgage Widely Held
Fixed Investment Trusts.”
Non-Mortgage Widely Held Fixed
Investment Trusts
Unit Investment Trusts Organized as Grantor Trusts
A unit investment trust (UIT) set up as a grantor trust
represents interest in a trust that holds a specified group
of stocks, bonds, U.S. government securities, currencies,
foreign securities, options, or other assets. Some
exchange-traded funds (ETFs) are structured as UITs. In
general, a UIT is an unmanaged portfolio that employs a
buy and hold strategy. The assets are not actively traded
but remain fixed until they mature or have reached the
trust’s termination date (the date when the UIT will
terminate and dissolve), and investors recover their
principal or proceeds. Some UITs may sell or replace a
security under certain circumstances, such as if the issuer
is undergoing litigation, or if the issuer’s financial viability
or security’s credit ratings are called into question.
Income and expenses of the trust are recognized
when they are earned or incurred, and not when they
are received or paid in cash. Therefore UIT income
is grossed up for these trust expenses. Investment
expenses generally relate to the operation of the trust and
include portfolio supervision, administration, evaluation,
bookkeeping and trustee fees. These can be used as a
deduction on IRS Form 1040. Organizational expenses are
mainly related to expenses in setting up the trust. These
include preparing registration statements, indentures,
etc., and may be offset against reportable income. These
should be added to the cost basis of your units to reduce
capital gains at sale or redemption. Other UIT instruments
accrue Original Issue Discount (OID), which must also be
calculated and reported to you.
Commodity Trusts
A commodity trust represents interest in a trust that holds
precious metals such as gold, silver, etc. Commodity
trusts do not pay cash distributions. However, assets
of the trust (such as gold, silver, etc.) are sold to cover
expenses. LPL Financial will report proceeds for these
sales and offsetting expenses. Some common commodity
trusts are SPDR Gold Trust ETF (Ticker: GLD), and Ishares
Silver Trust ETF (Ticker: SLV). An excerpt from GLD’s
prospectus on page 30 states:
3
United States Federal Tax Consequences
When the Trust sells gold, for example to pay expenses, a
Shareholder generally will recognize gain or loss in an amount
equal to the difference between (1) the Shareholder’s pro rata
share of the amount realized by the Trust upon the sale and
(2) the Shareholder’s tax basis for its pro rata share of the gold
that was sold, which gain or loss will generally be long-term
or short-term capital gain or loss, depending upon whether
the Shareholder has held its Shares for more than one year. A
Shareholder’s tax basis for its share of any gold sold by the Trust
generally will be determined by multiplying the Shareholder’s
total basis for its share of all of the gold held in the Trust
immediately prior to the sale, by a fraction the numerator of
which is the amount of gold sold, and the denominator of which
is the total amount of the gold held in the Trust immediately prior
to the sale. After any such sale, a Shareholder’s tax basis for its
pro rata share of the gold remaining in the Trust will be equal to
its tax basis for its share of the total amount of the gold held in
the Trust immediately prior to the sale, less the portion of such
basis allocable to its share of the gold that was sold.
De Minimis Rule: In the event these trusts sell a nominal
amount of commodities to pay for the trust’s expenses
and make no distributions of sale proceeds to investors,
the trusts are not required to pass reporting information to
LPL Financial, per Treas. Reg. Sec. 1.671-5(c)(2)(iv)(B).
Taxation of the trust
The trust will provide for flow through tax consequences as it
will be treated as a grantor trust or custodial arrangement for
U.S. federal income tax purposes.
Taxation of Oil Service HOLDRS
A U.S. receipt holder purchasing and owning Oil Service
HOLDRS will be treated, for U.S. federal income tax purposes,
as directly owning a proportionate share of the underlying
securities represented by Oil Service HOLDRS. Consequently,
if there is a taxable cash distribution on an underlying security,
a U.S. receipt holder will recognize income with respect to
the distribution at the time the distribution is received by the
trustee, not at the time that the U.S. receipt holder receives
the cash distribution from the trustee.
Royalty Trusts
A royalty trust represents interest in the profits from
properties producing gas, oil or minerals. Common
royalty trusts are BP Prudhoe Bay Royalty Trust (BPT)
and Hugoton Royalty Trust (HGT). An excerpt from BPT’s
Taxation of Unit Holders
Holding Company Depositary Receipts
(HOLDRs) Trusts
In computing his federal income tax liability, each Unit holder
is required to take into account his share of all items of Trust
income, gain, loss, deduction, credit and tax preference, based
on the Unit holder’s method of accounting. Consequently, it
is possible that in any year a Unit holder’s share of the taxable
income of the Trust may exceed the cash actually distributed
to him in that year. For example, if the Trustee should establish
a reserve or borrow money to satisfy debts and liabilities of
the Trust income used to establish the reserve or to repay the
loan must be reported by the Unit holder, even though the
income is not distributed to the Unit holder.
A HOLDRs trust represents interest in a trust which
holds a specified group of stocks. Some common
HOLDRs trusts are Oil Service HOLDRS Trust Depositary
Receipt (Ticker: OIH) and Semiconductor HOLDRS Trust
Depositary Receipt (Ticker: SMH). An excerpt from OIH’s
The Trust makes quarterly distributions to Unit holders of
record on each Quarterly Record date. The terms of the
Trust Agreement seek to assure to the extent practicable
that income, expenses and deductions attributable to each
distribution are reportable by the Unit holder who receives
the distribution.
Please note that an investor will be subject to the higher
long-term capital gains rate of 28%, rather than the standard
long term gain rate (generally 15%) when commodity trust
units held over one year are disposed, due to underlying
assets in commodity trusts being 100% collectibles.
Cost Basis – Frequently Asked Questions Regarding UITs
Grantor Trust UIT:
RIC UIT:
1. If I buy a grantor trust UIT in 2012, under Cost Basis
Legislation the UIT is noncovered always (because
grantor trusts fall under WHFIT regs). Correct?
1.If I purchased RIC UITs in 2012, under Cost Basis
Legislation the UITs, including UITs in DRPs, are
covered in 2012. Correct?
Correct.
2.If I take an in-kind distribution, the exchange of
the grantor trust UIT for the underlying securities
is non-taxable. Therefore, the acquisition date for
each of the underlying securities received in the inkind distribution should be the acquisition date of
when I bought the UIT originally (and not the date
when I took the in-kind distribution). Correct?
Correct. The in-kind distribution is generally nontaxable, although gain/loss will need to be calculated
on the portion of the in-kind distribution which
includes cash. The acquisition date for each of
the underlying securities received in the in-kind
distribution carries over to the unit holder from the UIT
and is not reset at the date of distribution.
3.How does LPL Financial get the “adjusted” cost
basis to apply to each of the underlying securities
received in an in-kind distribution?
Upon request, the UIT sponsor should provide a
statement which reflects the adjusted cost basis price
of the UIT holdings on the Redemption In Kind Date,
based on the original purchase date of the units, to aid
in the calculation.
4.I am aware that First Trust began changing the
structure of any future UITs from WHFITs to RICs.
However, I was informed not all UITs will be able
to convert. Can you specify which kind and why?
Are there certain limitations with RICs? And if so,
what are they?
RICs have portfolio diversification requirements that
must be met, so typically First Trust will not structure
a trust as a RIC if they put fewer than 25 securities
in the portfolio. Certain securities do not have to
abide by that as they are already diversified, so RICs
with underlying RICs are automatically diversified.
On a side note, the California Closed End portfolios
must remain Grantor Trusts as California law doesn’t
allow for the income to be CA tax free on a RIC that
contains RICs.
Correct. UITs have been considered covered under
Cost Basis Legislation since 2011, unless the UITs
were in DRPs, which became covered in 2012.
2.Regardless of the year, UITs are not eligible for
average cost unless participating in a DRP, correct?
Correct.
3.If I take an in-kind distribution, the exchange
of the RIC UIT for the underlying securities is
taxable. Therefore, the acquisition date for each
of the underlying securities received in the inkind distribution should be the date of the in-kind
distribution (and not the original date I bought the
UIT). Correct?
Correct.
4.How does LPL Financial obtain the “adjusted” cost
basis to apply to each of the underlying securities
received in an in-kind distribution?
Basis is determined based on the fair value of the
securities received. This information is provided by
the Trustee.
5.Are the underlying securities received from the inkind distribution considered covered or noncovered?
Since the receipt of the securities in the in-kind
distribution is a taxable event, deemed to have been
acquired for cash under the cost basis rules, the
determination will be the same as any other cash
acquisition in an account. Generally, stocks received
would be considered covered (effective since 2011) and
securities in an eligible DRP became covered in 2012.
Examples of trusts which will remain Grantor Trusts
are: Target 10, Target Dividend, Nasdaq 15, Global 15,
MSCI EAFE, etc.
5
1099-MISC box
2012 IRS 1099 CONSOLIDATED REPORTING STATEMENT
LPL Financial
Member FINRA / SIPC
9785 Towne Centre Drive
San Diego, CA 92121-1968
Federal ID No: 95-2834236
Copyright © 2011 Shutterstock, Inc. & Jupiterimages Corporation.
The statement appearance will differ from this Conceptual Design based on paper and DST Output production line. Image(s):
PROPRIETARY AND CONFIDENTIAL: Not to be disclosed to third parties or used for other than recipient’s own internal purpose.
Account Number: 9999-9999
90 FP 1 B 1 1 A 10061 10061 **5 DGT
Courtesy Form
INFORMATION LINE (OPTIONAL)
JOHN A INVESTOR
C/O LINE
DELIVERY ADDRESS
DELIVERY ADDRESS
ANYTOWN ST 12345-1234
Corrected on 02/20/12
FORM 1099-DIV
Document Samples designed and produced by DST Output using Digital Press Technology
Recipient’s Tax Identication
Number: 99-9999999
IRS BOX
1A.
1B.
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DIVIDENDS AND DISTRIBUTIONS
TOTALS FOR TAX YEAR 2012
FORM 1099-INT
OMB #1545-0110
IRS BOX
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TOTAL ORDINARY DIVIDENDS1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90,065.01
QUALIFIED DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,401.45
TOTAL CAPITAL GAIN DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,427.88
UNRECAP. SEC. 1250 GAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
SECTION 1202 GAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
COLLECTIBLES (28%) GAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
NONDIVIDEND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,425.67
FEDERAL INCOME TAX WITHHELD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
INVESTMENT EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
FOREIGN TAX PAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
FOREIGN COUNTRY OR U.S. POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VARIOUS
CASH LIQUIDATION DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,291.47
NONCASH LIQUIDATION DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
EXEMPT-INTEREST DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
SPECIFIED PRIVATE ACTIVITY BOND INTEREST DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . $0.00
STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
STATE IDENTIFICATION NO.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
STATE TAX WITHHELD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
FORM 1099-MISC
IRS BOX
1.
2.
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8.
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Your Financial Advisor
1
MISCELLANEOUS INCOME
IRS BOX
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RENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
ROYALTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
SUBSTITUTE PAYMENTS IN LIEU OF DIVIDENDS OR INTEREST. . . . . . . . . . . . . . . . . . . . . . $0.00
STATE IDENTIFICATION NO.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
This statement is being provided for your information only and
generally will not be furnished to the Internal Revenue Service.
However, this reporting exemption does not apply for any payments
listed in 1099-MISC Box 8 and any tax credit bonds listed on Form
1099-INT. If you are required to le a return, a negligence penalty
or other sanction may be imposed on you if this income is taxable
and the IRS determines that it has not been reported.
John Representative
(999) 999-9999
Rep ID: 44FB
INTEREST INCOME
OMB #1545-0112
INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,975.00
EARLY WITHDRAWAL PENALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
INTEREST ON U.S. SAVINGS BONDS & TREAS. OBLIGATIONS . . . . . . . . . . . . . . . . . . . . $1,591.72
FOREIGN TAX PAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
FOREIGN COUNTRY OR U.S. POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
TAX-EXEMPT INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $801.24
SPECIFIED PRIVATE ACTIVITY BOND INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $314.81
TAX-EXEMPT BOND CUSIP NO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VARIOUS
STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEE DETAILS
STATE IDENTIFICATION NO.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEE DETAILS
FORM 1099-OID
OMB #1545-0115
Copy B For Recipient
Department of the Treasury - Internal Revenue Service
(keep for your records)
ORIGINAL ISSUE DISCOUNT
OMB #1545-0117
ORIGINAL ISSUE DISCOUNT FOR 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
OTHER PERIODIC INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
EARLY WITHDRAWAL PENALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
ORIGINAL ISSUE DISCOUNT ON U.S. TREASURY OBLIGATIONS * . . . . . . . . . . . . . . . . . . . . $0.00
STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
STATE IDENTIFICATION NO.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.00
1
Per IRS 1099-DIV Instructions for Box 1A, includes net short-term capital gain distributions from
mutual funds; (New!) Tax-exempt dividends will now report on 1099-DIV Box 10.
* This may or may not be the correct gure to report on your income tax return. See instructions
on the last page.
1 2 3 ENV*
1 The amount shown in 1099-MISC box 2 represents
royalty payments made by royalty trusts before reduction
for severance and other taxes have been withheld. As
royalty trusts fall under WHFIT regulations, adjustments
for these royalty trusts may be included in boxes 1 and
2 under rents and royalties respectively. Certain royalty
income may be treated as gain from the sale or exchanges
of assets used in a trade or business under Code Section
1231, thereby qualifying for capital gains treatment. This
may need to be included on your return using IRS Form
4797 – Sales of Business Property. Qualified stated
interest received by the trustee will be reported in box 1 of
the 1099-INT. Other assets within royalty trusts may be
treated as indebtedness subject to Treasury Regulations
applicable to contingent payment debt instruments (CPDI).
As a result, an actual payment or OID shortfall may be
recognized, which represents the difference between
the projected contingent payment and actual contingent
payment, and reported in box 6 of the Non-Federally
Reported Items section of your 1099 Consolidated
Reporting Statement. Trust administrative expenses,
severance tax and basis adjustments associated with
rental or royalty income generated by the trust will also be
found in the Non-Federally Reported Items section, and
may be deductible on your Schedule E – Supplemental
Income and Loss. Severance tax is imposed by the state
on the removal of nonrenewable resources.
Please note that if you were invested in a royalty trust, a
separate tax booklet, containing tax information such as
depletion schedules, historical information, state income
tax deductions and credits, and state apportionments
will be mailed to you in March 2013, when made
available by the issuers.
Proceeds from Broker and Barter Exchange Transactions (1099-B)
1099-B
DETAILS - PROCEEDS FROM SALE TRADES OR EXCHANGES AND TAX WITHHELD
The proceeds stated on this page are reported net of option premiums. However, option premiums are built into the gain or loss amounts computed below. If you have securities sold because
of the exercise of an option granted or acquired before 2013, we have included option premium information as a separate column on this page, to help you reconcile to the gain/loss amount
shown on this statement. Should you elect to report net of option premiums, you must adjust your gain/loss amounts on your Form 8949.
SECURITY DESCRIPTION
(BOX 8)
CUSIP
(BOX 1D)
DATE OF
ACQUISITION
(BOX 1B)
GROSS PROCEEDS
DATE OF (LESS COMMISSIONS
SALE OR
AND OPTION
EXCHANGE
PREMIUMS)
(BOX 1A)
(BOX 2A)
COST OR
OTHER BASIS
(BOX 3)
GAIN OR (LOSS)
OPTION
PREMIUM
WASH SALE
AMOUNT
ADJUSTMENT
TO BASIS2
WASH SALE
LOSS
DISALLOWED3
(BOX 5)
COLLECTIBLES
ALLOCATION
FACTOR (CAF)4
2
SHORT-TERM CAPITAL GAINS OR LOSSES - ASSETS HELD ONE YEAR OR LESS (BOX 1C)
COVERED (BOX 6B): FORM 8949 WITH BASIS REPORTED TO THE IRS
UCB
B93562120
QTY (BOX 1E): 140.000 250.00
1/5/2011
12/21/11
23,089.70
20,000.00
3,089.70
250.00
0.00
0.00
BERKSHIRE HATHAWAY INC
084670108
03/11/11
05/10/10
1,234,926.83
1,050,000.00
184,926.83
0.00
0.00
0.00
931142103
1/08/11
11/30/11
QTY (BOX 1E): 20.000
WAL-MART STORES INC
TOTAL SHORT-TERM COVERED
284,550.00
296,700.00
(12,150.00)
0.00
0.00
12,150.00)
1,260,516.53
1,071,000.00
189,516.53
250.00
0.00
(12,150.00)
NON-COVERED1 (BOX 6A): FORM 8949 (BOX B) WITH BASIS NOT REPORTED TO THE IRS
ANHEUSER BUSCH INBEV SA B6399C107
QTY (BOX 1E): 500.000
07/08/10
07/08/11
115,604.44
100,000.00
15,604.44
0.00
0.00
0.00
VANGUARD INTL GRTH INVS
QTY (BOX 1E): 2000.000
921910204
01/05/11
05/29/11
50,000.00
45,000.00
5,000.00
0.00
0.00
0.00
VANGRD HI YLD CORP INVS
QTY (BOX 1E): 500.000
922031208
01/04/11
11/17/11
7,895.00
8,000.00
(105.00)
0.00
0.00
0.00
XYZ MUTUAL FUND
QTY (BOX 1E): 500.000
12XYZ4567
11/01/11
12/07/2011
252,800.00
290,650.00
(37,850.00)
0.00
4,000.00
(37,850.00)
173,499.44
153,000.00
20,499.44
0.00
4,000.00
(37,850.00)
0.00
0.00
TOTAL SHORT-TERM NON-COVERED
LONG-TERM CAPITAL GAINS OR LOSSES - ASSETS HELD MORE THAN ONE YEAR (BOX 1C)
COVERED (BOX 6B): FORM 8949 WITH BASIS REPORTED TO THE IRS
FT INFLTN HEDGE 2 FE RE
QTY (BOX 1E): 2540.000
30273E585
XYZ MUTUAL FUND
QTY (BOX 1E): 500.000
12XYZ4567
TOTAL LONG-TERM COVERED
11/01/11
09/28/11
24,538.94
2,540.00
21,998.94
0.00
12/07/2011
252,800.00
290,650.00
(37,850.00)
0.00
0.00
(37,850.00)
24,538.94
2,540.00
21,998.94
0.00
0.00
(37,850.00)
These securities are not covered under the 1st and 2nd phases of the Cost Basis accounting legislations passed by Congress on October 3, 2008. Therefore the cost basis, acquisition date, disallowed loss from wash sales, and
holding period are not being reported to the IRS for these securities. Please refer to the 2012 1099 Tax Guide online for more information on covered securities.
1
Please note that the amount displayed in this column is included in the amount listed in the Cost Or Other Basis column. If there is a wash sale adjustment amount displayed, your holding period includes the holding period of the
stock or securities that were previously sold, where the loss deduction was postponed or disallowed.
2
3
The amounts listed in this column represent the losses you incurred from wash sales that cannot be deducted from your tax return.
4
Collectibles Allocation Factor (CAF): Represents the percentage of proceeds associated with UIT grantor trusts you sold in 2012 that contain assets considered “collectibles,” which is subject to a higher long-term capital gains rate
f 28% h
it h ld
1
di
d Pl
f t th 2012 WHFIT G id
li f d t il
Grantor UITs with underlying “Collectibles” assets
2 Generally, collectibles gain or loss comes from the
sale or trade of a work of art, rug, antique, metal (such
as gold, silver and platinum bullion), gem, stamp, coin or
alcoholic beverage held more than one year. Collectibles
gain includes gain from the sale of an interest in a
partnership, S corporation or trust due to unrealized
appreciation of collectibles.
Long-term capital gains generated from collectibles
(such as commodity trusts) are taxed at a rate of 28%
when units held over one year are sold. When investors
purchase or sell units of these grantor UITs, the investors
must know the portion of the trust holdings that represent
assets considered “collectibles” on the purchase date
and sales date in order to properly recognize gain or loss.
Therefore, a Collectible Allocation Factor (CAF) has been
added to represent the percentage of basis or proceeds
that is associated with collectibles. For commodity trusts,
the Collectible Allocation Factor is always 100% or 1.00.
However, for non-commodity grantor trusts that invest a
portion of their portfolio in commodity trusts, this factor
will vary and will display separately on the 1099-B for
sales of these trusts. For purchases of these trusts made
in 2012, the Collectible Allocation Factor will appear in the
Non-Federally Reported Items section, and you will need
to retain this information for future gain or loss reporting.
7
Principal Payments from Non-Mortgage Widely Held Fixed
Investment Trusts
1099-B
DETAILS - PRINCIPAL PAYMENTS FROM NON-MORTGAGE WIDELY HELD FIXED INVESTMENT TRUSTS
Please refer to the Important Tax Information disclosure in the Summary section regarding the additional Widely Held Mortgage Trust (WHMT) statement that will be mailed to you by March 15, 2013.
A separate 1099-B, related to WHMTs, will contain information released by issuers in March 2013, and will need to be added to the 1099-B box totals listed on this form. The total amounts listed on both
statements must be included on your tax return.
The issuers for the payments below include Unit Investment Trusts, Holding Company Depositary Receipts Trusts, Commodity Trusts and Royalty Trusts, which are treated as grantor trusts and fall under
WHFIT regulations, as dened by § 1.671-5. The information provided to you in this section was obtained from the issuer, its trustee or an agent of the issuer. Some or all of a distribution paid as late
as March 2013 may be recognized as income for the 2012 tax year.
With these trusts, sales are reported by when the trust sells the assets within its portfolio. In some cases, proceeds from these sales were used to pay the trust’s expenses, which may have resulted in
no distributions paid to you. Expenses and other adjustments associated with these assets can be found in the Non-Federally Reported Items section, which may be deductible on your tax return on
Schedules A or E (if applicable) or may impact your cost basis on Schedule D. Please review this information with your tax advisor.
COST BASIS
ALLOCATION FACTOR 2
CUSIP
DATE1
(BOX 8)
(BOX 1D)
(BOX 1A)
FT BAL INC SLT 5 CA MO
QTY (BOX 1E): 5000.000
QTY (BOX 1E): 4000.000
QTY (BOX 1E): 9000.000
FT HIGH YLD INC CE 9 CA
QTY (BOX 1E): 1000.000
QTY (BOX 1E): 500.000
QTY (BOX 1E): 200.000
FT MUN CLSD 11 MO FEE CA
QTY (BOX 1E): 1500.000
QTY (BOX 1E): 3000.000
QTY (BOX 1E): 2500.000
302667290
04/30/11
1,000.00
PRINCIPAL DISTRIBUTION
302667290
07/31/11
1,500.00
302667290
10/08/11
2,000.00
REDEMPTION
30268H288
01/30/11
0.00
RECEIPT (REPORTABLE SALE)
0.32
30268H288
02/27/11
0.00
0.45
30268H288
03/31/11
0.00
0.06
30268H346
01/25/11
100.00
30268H346
05/29/11
50.00
30268H346
11/17/11
25.00
PRINCIPAL (TERMINATION)
SECURITY DESCRIPTION
3
PROCEEDS AMOUNT
TOTAL PRINCIPAL PAYMENTS FROM NON-MORTGAGE WIDELY HELD FIXED INVESTMENT TRUSTS (BOX 2A)
1
2
Date:
Cost Basis Allocation Factor:
TRANSACTION TYPE
(BOX 2)
(IF APPLICABLE)
$4,675.00
Proceeds from WHFITS are reportable by when they are received by the trust, regardless of when they are paid to you.
This factor represents the ratio of assets sold divided by the total net asset value of the trust, and tells you what portion of your current basis in the trust is to be applied to the proceeds for gain/loss reporting.
This factor allows you to calculate your new adjusted basis. Under § 1.671-5, LPL Financial is required to provide you this ratio for your adjusted basis calculation.
This third section of the 1099-B will contain sale
transactions made by the trusts, which will be reported
by the date and gross amount the trust sold the assets
for, and not by the date and amount of proceeds that
3 were paid to you. Some or all of the distributions
made as late as March 2013 may be recognized as
income for the 2012 tax year. A Cost Basis Allocation
Factor (CBAF) is included to indicate what portion of
your current basis in the trust should be applied to the
proceeds for gain/loss reporting. Transaction types
will also be identified to indicate the type of event that
occurred. Incurred expenses and other adjustments
associated with these assets will be found in the NonFederally Reported Items section, and may be deductible
on your return.
The primary difference between the Cost Basis Allocation
Factor (CBAF) and Collectibles Allocation Factor (CAF)
is that the CBAF is furnished when the trust sells assets
within the portfolio and the CAF is furnished when the
investor sells units of a portfolio that contains collectibles.
Additional Information & Items Not Reported to the IRS
NON-FEDERALLY REPORTED ITEMS SECTION
DETAILS - NON-FEDERALLY REPORTED ITEMS
Please refer to the Important Tax Information disclosure in the Summary section regarding the additional Widely Held Mortgage Trust (WHMT) statement that will be mailed to you by March
15, 2013. A separate statement listing other non-federally reported items in relation to WHMTs will contain information released by issuers in March 2013.
A Form Schedule K-1 should be mailed to you directly from the General Partner, reporting your pro rata share of the partnership’s taxable income. Although the partnership generally is not
subject to income tax, you are liable for tax on your share of partnership income, whether or not distributed. Please use the Schedule K-1 to include your share of income on your tax return.
The information on this statement only represents cash distributions you received from the partnership, but is not classied as taxable or dividend income, and is instead considered a return
of capital (adjustment to your basis).
This section lists non-federally reported items, which may be useful when preparing your tax return. These items may or may not be taxable at the state or local level. Please review this
information with your tax advisor.
If you have OID shortfall listed, this calculation is based on the period you held these assets with LPL Financial during tax year 2012. Please consult with your tax professional to determine if
an adjustment may be required.
DESCRIPTION
4
CUSIP
DATE
ACTIVITY
AEI INCOME & GROWTH FD
12345678
07/19/11
OPT PREM.
BRASKEM SA ADR REP PFD A
33345678
08/01/11
INV EXP-PROCEEDS
COMARCO INC
COMARCO INC
SUBTOTAL
22345678
22345678
08/08/11
08/08/11
OPT PREM.
ADD TO BASIS
GROUPE BRUXELLES LAMBERT
12543678
03/12/11
OID ON MUNI
MARGIN DEBIT INTEREST
MARGIN DEBIT INTEREST
CASH DEBIT INTEREST
SUBTOTAL
12347890
12347890
12347890
04/01/11
04/01/11
05/19/11
MARGIN INTEREST
DIVIDEND
CASH DEBIT INT
ABC CORP
66434224
05/01/11
PURCHASE
FT INFLTN HEDG PRT CA MO
FT INFLTN HEDG PRT CA MO
SUBTOTAL
98765432
98765432
04/01/11
04/01/11
PURCHASE
PURCHASE
AMOUNT
OPTION
PREMIUM
COLLECTIBLES
ALLOCATION
FACTOR (CAF)
QUANTITY
PRICE
NFR BOX
0.000
0.0000
986.55
3
650.000
0.0000
(10,536.45)
7
1,252.000
1,225.000
2.2100
2.2100
322,642.35
322,642.35
645,284.70
3
3
92.000
88.6500
238,140.69
5
0.000
0.000
0.000
0.0000
0.0000
0.0000
735,152.48
693,102.55
739,272.66
2,167,527.69
1
2
1
1.000
0.0000
200,000.00
1.000
1.000
0.0000
0.0000
200,000.00
200,000.00
400,000.00
PURCHASES
Adjustments related to WHFIT reporting, such as
investment interest expenses, severance tax and basis
4 adjustments are not reported to the IRS but are
included in the Non-Federally Reported Items section
for your information as it may be deductible on Schedules
0.000344
11
11
11
A or E of your return. Some adjustments may be subject
to the 2% Adjusted Gross Income (AGI) limitation. Please
consult with your professional tax advisor to determine
how to properly reflect these on your return.
9
How to Calculate Gain or Loss for Principal Payments
from NMWHFITs with CBAF
Using First Trust 2057 Inflation Hedge 2 Fee Reinv (CUSIP 30273E585) as an example:
1. Take your adjusted cost basis of the security (which includes your original purchase price plus
reinvestments) and multiply this by the CBAF furnished on your 1099-B. This represents your
Basis of Acquisition.
2. Take the principal amount shown on your 1099-B and subtract your Basis of Acquisition to arrive at
your 2012 Realized Gain or Loss for that transaction.
3. Finally, take your adjusted cost basis and subtract your Basis of Acquisition to arrive at your new
adjusted cost basis for tracking purposes going forward.
4. On your IRS Form 1040 Schedule D, be sure to include the quantity of shares the principal payment
was based off of.
Sample calculation: $6,555.96 = original purchase price, $20.72 = how much you reinvested and
your 1099-B showed a principal payment = $1,264.38 and CBAF = 0.1798918:
6,576.68 Adjusted Purchase Price (Includes Reinvests) [$6,555.96 + $20.72]
× 0.1798918 Cost Basis Allocation Factor (CBAF)
1,183.09 Basis of Acquisition
1,264.38 Principal
- 1,183.09 Basis of Acquisition
81.29 2012 Realized Gain or Loss
6,576.68 Adjusted Purchase Price
− 1,183.09 Basis of Acquisition
5,393.59 Adjustment of Cost Basis for 2013 and Forward
Widely Held Mortgage Trust (WHMT) Statement
A Widely Held Mortgage Trust (WHMT) represents interest
in a trust holding a pool of mortgages that makes monthly
payments of principal and interest. Issuers such as Federal
National Mortgage Association (FNMA), Federal Home
Loan Mortgage Corporation (FHLMC) and Government
National Mortgage Association (GNMA) purchase
mortgages from banks and mortgage companies, bundle
them together to form a mortgage pool, and sell certificates
representing interests in the pool. Every certificate holder
is entitled to a pro rata share of the aggregate principal
and interest payments made by the borrowers (or
homeowners). LPL Financial is required to report the gross
interest, expense, principal factors and market discount
fraction used to determine market discount accrual and
bond premium amortization. If you held a mortgage pool
security, an additional WHMT statement will be postmarked
by March 15, 2013, which may contain:

A separate 1099-B reporting gross principal periodic
payments in box 2

A separate 1099-INT reporting in:
Income and principal must be recognized in the year of record
date, which in most cases is the month prior to the payment.
Interest income Is grossed up with an offsetting expense.
The expenses are a miscellaneous deduction subject to the
2% AGI limitation.
All 1099-INT and 1099-B amounts on your WHMT statement
will need to be added to the 1099-INT and 1099-B box totals
of your 1099 Consolidated Reporting Statement. Any gross
income or proceeds related to NMWHFITs will already be
included in the 1099-INT and 1099-B boxes of the 1099
Consolidated tax statement. The 1099-B totals from both
statements must be reflected in the Sales Price column of
your Schedule D. Please review this information with your
professional tax advisor.
yy Box 1 gross interest paid or accrued on the sale of
mortgage pool securities, and
yy Box 5, any associated expenses

Other Non-Federally Reported Items such as accrued
interest on purchases
11
How to Calculate Gain or Loss for WHMTs
There are two options you can consider to calculate your recognized gain or loss for WHMTs.
1. Recognizing gain or loss on every principal paydown

An adjusted Basis Percentage factor will be provided
to you to identify the portion of the adjusted basis
corresponding to the principal payment for the
computation of that gain or loss on that return of capital
2. Recognizing gain or loss at final redemption

Prior to redemption, you would report the principal
payments listed on the 1099-B on your IRS Form 1040
Schedule D

Your cost basis can equal your principal payment,
showing a $0.00 gain or loss

Reduce your basis by the principal paydown to arrive at
your adjusted basis going forward

At final redemption or disposition of the asset, you
would recognize full gain or loss
Mortgage Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of
prepayment risk, and interest rate risk.
GNMA’s are guaranteed by the U.S. government as to the timely payment of principal and interest, however this guarantee does not apply to the yield, nor does it protect against loss of principal if the
bonds are sold prior to the payment of all underlying mortgages.
Unit Investment Trusts (UITs) are fixed portfolios of securities with a set term. Strategies is a long-term one, therefore investors should consider their ability to pursue investing in successive trusts and tax
consequences.
The LPL Financial family of affiliated companies includes LPL Financial, UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC. To the extent you are receiving investment advice
from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured
Not Bank/Credit Union Guaranteed
May Lose Value
Not Guaranteed by any Government Agency
Not a Bank/Credit Union Deposit
OP-05196-0213
Tracking# 1-029424

2012 Widely Held Fixed Investment Trust (WHFIT) Guide

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