[12955]
December 20, 2000
TO: BROKER/DEALER ADVISORY COMMITTEE No. 29-00
BANK AND TRUST ADVISORY COMMITTEE No. 32-00
OPERATIONS COMMITTEE No. 29-00
RE: RESPONSIBILITY FOR 1099B TAX REPORTING FOR FUND/SERV EXCHANGE
TRANSACTIONS
In 1992 and 1993, the Institute issued memoranda regarding tax reporting responsibility
with respect to the redemption side of Fund/SERV exchange transactions. At that time, a
survey undertaken by the Institute’s Broker/Dealer Advisory Committee determined that
broker/dealers are more likely to assume responsibility for Form 1099B reporting of such
transactions. Accordingly, the Broker/Dealer Advisory Committee agreed that going forward,
broker/dealers (and other intermediaries) would be responsible for 1099B reporting to clients
for the sell side of Fund/SERV exchange transactions. It appears that there may be still be some
confusion about this reporting responsibility and therefore the Broker/Dealer Advisory
Committee requested at its October 2000 meeting that this memorandum be reissued.
When an exchange is processed through Fund/SERV, two transactions actually take
place. The first of these is an exchange redemption out of Fund A, and the second is a
subsequent exchange purchase into Fund B. The first transaction, the exchange redemption, is a
taxable event, which must be reported via Form 1099B. It is important to note that failure to
comply with the 1993 Broker/Dealer Advisory Committee agreement will lead to one of two
scenarios. In the first of these, if neither the fund nor the broker supply Form 1099B for
Fund/SERV exchange redemption transactions, the shareholder will be without an important
and mandatory tax-reporting document. If, on the other hand, both the fund and the broker
supply Form 1099B for the same Fund/SERV exchange redemption transaction, having the
proceeds from the same sale of securities reported twice will disadvantage the shareholder.
At this time, the Institute would like to remind all broker/dealer (and other financial
intermediary) Fund/SERV participants of this agreement and urge them to assume (or continue
to assume) Form 1099B reporting responsibility for Fund/SERV exchange redemption
transactions. The Institute also urges funds and brokers to confirm with each other their
understanding of this matter and their subsequent procedures with respect to tax reporting
obligations insofar as the January 2001 and all future tax reporting seasons are concerned.
If you have any questions regarding this memo, please contact the undersigned at
202/326-5850 or justine@ici.org.
Justine Phoenix
Director – Operations/
Distribution and Service