October 1, 1992
TO: MEMBERS - ONE PER COMPLEX NO. 32-92
OPERATIONS MEMBERS NO. 34-92
TAX MEMBERS NO. 61-92
SMALL FUNDS MEMBERS NO. 19-92
BROKER/DEALER ADVISORY COMMITTEE NO. 30-92
INSURANCE BROKER-DEALER ADVISORY COMMITTEE NO. 14-92
BANK BROKER/DEALER ADVISORY COMMITTEE NO. 7-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 54-92
RE: RESPONSIBILITY FOR 1099B TAX REPORTING FOR NSCC FUND/SERV
EXCHANGE TRANSACTIONS
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Following the January 1992 tax reporting season, the
Institute became aware that no standard procedure exists for
determining whether the broker or the fund is to report gross
proceeds on IRS Form 1099B when a shareholder exchanges shares in
Fund A for shares in Fund B through the NSCC’s Fund/SERV system.
Rather than leave the situation as is, with funds and brokers
contacting each other to determine who will report on Form 1099B,
the Institute’s Broker Dealer Advisory Committee 1/ placed this
issue on its agenda with a view toward ensuring uniform reporting
practices. A survey of all of the fund and broker Fund/SERV
participants showed that more broker/dealers than funds had
assumed this responsibility in the past.
Accordingly, the Broker/Dealer Advisory Committee agreed
that, beginning with the January 1993 tax reporting season and
thereafter, broker/dealers (and other intermediaries) will be
responsible for 1099B reporting to clients for the sell side of
Fund/SERV exchange transactions. This reporting convention will
be consistent with the usual 1099B tax reporting by
broker/dealers for normal wire order redemptions, whether
processed through Fund/SERV or not.
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1/The Broker/Dealer Advisory Committee consists of senior
operations executives of mutual funds and broker/dealers and
serves as a steering committee for the ongoing development of
Fund/SERV, NETWORKING, and other NSCC mutual fund services.
-2-
In view of the agreement of the Broker/Dealer Advisory
Committee, the Institute urges all broker Fund/SERV participants
to assume (or continue to assume) the Form 1099B reporting
responsibility for Fund/SERV exchange transactions. Given the
importance of Form 1099B tax reporting to fund shareholders, it
is imperative that Fund/SERV users understand the ramifications
of this agreement. We recommend that funds and brokers confirm
with each other their understanding of this matter and their
procedures with respect to this tax reporting obligation as soon
as reasonably possible and certainly in advance of the January
1993 tax reporting season.
If anyone has any comments on the foregoing or believes
there are matters related to the foregoing that should be brought
to the Institute’s attention, please contact me either in writing
at the Institute or by telephone at 202/955-3552.
Donald J. Boteler
Assistant Vice President -
Operations