The New Schedule Who dat say who dat?

What is it? Schedule D is now a summary schedule Information on Schedule D now comes from That’s important, jury. Write that down.

Use Schedule D to To figure the overall gain or loss from transactions reported on Form 8949 To report a gain from – Form 2439 – Form 6252 – Form 4797 Part I To report a gain or loss from – Form 4684 – Form 6781 – Form 8824 To report a gain or loss from – Partnership – S Corporation – Estate – Trust To report capital gain distributions not reported directly on 1040, line 13 To report a capital loss carryover from 2010 to 2011

Short Term Box A Checked Short Term Box B Checked Short Term Box C Checked Long Term Box A Checked Long Term Box B Checked Long Term Box C Checked What are my emotions other than that guy has got to go?

Add Combine +, - Combine +, -

Do We Really Need ’s? 3. Short Term gains and losses for which you did not receive a Form 1099-B(or substitute statement) Check Box C at the top of this form Watch us turn greener by the minute, our complexion that is. We’ve got 3 right here.

Etc. etc. So here we are at 6 with ST and LT, box A, B and C. Check only one box (A, B or C) on each Form 8949.

Part 2 for LT looks the same As Part 1 for ST. So, if we have ST Box A And LT Box A transactions, they can go on a single Form We must have the same box checked in both Part I and Part II.

Why Do We Have A New Schedule D? A little background The IRS has been devoting significant resources to build systems that Are capable of comparing the data that are received from third parties Against information reported on tax returns to identify inconsistencies.

Several Years Ago Senate Finance Committee ordered a study to determine the main cause of the tax Gap. One of the reasons identified was improper reporting of capital gains and losses on Schedule D. 2 problems identified – Incorrect selling price – Incorrect basis of property sold

Schedule D on 1120, 1102S and 1065 thought not to be a problem since there is a balance sheet attached. Schedule D on 1041 in abeyance because fewer forms are filed. More On Several Years Ago

Uncle Used A Pronged Approach Administrative – Internal Revenue Service – First: Redesigned 1099-B Legislative – Congressional Action – Second: Legislation requiring to include cost basis of items sold on 1099-B, The Emergency Economic Stabilization Act of 2008 – Delayed effective start date to allow broker dealer community to Adjust & Gather information

Down the Pike For 2011, if you sold a covered security your broker will report it on 1099-B that will show your basis – Generally, a covered security is one acquired after 2010 For future reference, – effective January 1, 2012, information about mutual funds and dividend reinvestment plans will also be recorded and reported – effective January 1, 2013, options, fixed income, and any other security otherwise not included in the previous tax years must be recorded by the brokerage and reported to the IRS.

D ST 8949 Box A LT 8949 Box A ST 8949 Box B LT 8949 Box B ST 8949 Box C LT 8949 Box C Both Sides

On To The 8949 Box A – Received a 1099-B (substitute) with an amount shown for cost or other basis - unless not reported to IRS indicated (Box B) Box B – Received a 1099-B (substitute) with no amount shown for cost or other basis Box C – No 1099-B received

The Columns (a) Description (b) Code (c) Date Acquired (d) Date Sold (e) Sales Price (f) Cost or other basis (g) Adjustments to gain or loss Columns (e), (f), (g) on Schedule D correspond to Columns (e), (f), (g) on Form 8949 and contain the same information. (b) And (g) are connected

More About Columns (b) and (g) To explain any adjustments to gain or loss in column (g), a code is entered in column (b). If more than one code applies, enter them separated by spaces or commas. In column (g), enter any adjustments to gain or loss

More About Columns (b) and (g) - Really? Negative amounts in parentheses (…) In (g) include – Broker’s fees – Commissions – State and local transfer fees – Option premiums – Unless a net amount went in column (e) More than 1 code in (b) – Net the amounts – Example One adjustment is $5,000, another ($1,000), enter $4,000

The Codes The codes are entered in column (b) to explain adjustments in column (g). There are 10 letter codes. B – Use this code if the basis shown in Box 3 of the 1099-B is not correct. – Box 3 too low-enter the difference between the correct basis and the Box 3 basis in column (g) as a negative number (in parentheses). – Box 3 too high-low-enter the difference between the correct basis and the Box 3 basis in column (g) as a positive number. – Do you think it should be reversed? Ahhh! IRS restraint

A Little More on Code B When we talk about the adjustment in basis to the amount in 1099-B box 3, we are thinking basis The adjustment in 8949 column (g) goes to column (g) of Schedule D which adjusts the gain or loss. Higher basis results in lower gain (higher loss)

A Little More on Code B (Cont’d) An Example We sell 100 shares of stock for $1000 that we purchased 2 years ago for $1500, our basis. We receive the 1099-B with the number $650 in box 3. The number is too low. If we used this box 3 number, our gain would be – $1,000 - $650 or $350. – Following the instructions for 8949 we enter the difference between the correct basis, $1500, and the reported basis, $650, or $850 as a negative number in () – On Schedule D when we apply the adjustment to basis, -$850, The gain would look like this: $1000(e) - $650(f) - $850(g) = - $500(h), a $500 loss. We know this is correct.

More Codes T – Use this code if the 1099-B Box 8 is wrong. – Let’s say box 8 says the transaction is ST when actually it is LT. Enter 0 in column (g) (unless an adjustment is required because of another code). Report the gain or loss in the correct part of Form In our example, Part II.

More Codes N – Use this code if you received 1099-B or 1099-S as a nominee for the actual property owner. Enter the transaction on Form 8949 as if the owner But, – in column (g),enter any resulting gain as a negative number or – in column (g),enter any resulting loss as a positive number The result is a gain or loss of $0 on Schedule D.

More Codes H – Use this code if you sold your main home for a gain, must report the sale on Form 8949 and can exclude some or all of the gain. Enter the amount of the excludable (non taxable gain) as a negative number (in Parentheses) in column (g).

Example-Sale of Main Home Sold main home in 2011 for $320,000. – Received a 1099-S showing $320,000 gross proceeds Basis - $100,000; Selling expense - $20,000 Eligible to exclude entire $200,000 gain

Example-Sale of Main Home (Cont’d) On 8949, Check box C On line 3 – Complete column (a) description column (c) date acquired Column (d) date sold Enter – $320,000 in column (e) – $100,000 in column (f) – H (the code) in column (b) – $220,000 in column (g) as a negative number In parentheses to show it is negative Box C Line 3

Example-Sale of Main Home (Chug on over to Schedule D) $320,000$100,000 ($220,000) $0

Still More Codes S – Use this code if you sold or exchanged qualified small business stock and can exclude part of the gain. X – Use this code if you can exclude all or part of your gain under the rules for DC Zone assets or qualified community assets. R – Use this code if electing to postpone all or part of a gain under the rules for rollover of gain from QSB Stock, empowerment zone assets, publicly traded securities, or stocks sold to ESOPS or certain cooperatives. For codes S, X, and R, enter the amount of the exclusion as a negative number (in Parentheses) in column (g). The rules referred to in this slide can be found in 2011 Instructions for Schedule D (and 8949) pages D-6 and D-7.

Still More Codes W – Use this code if you have a nondeductible loss from a wash sale. Enter the amount of the nondeductible loss as a positive number in column (g) L – Use this code if you have a nondeductible loss other than a loss indicated by code W. Enter the amount of the nondeductible loss as a positive number in column (g)

Still More Codes O – Use this code if you include any expense of sale or certain option premiums in column (g) – Or you have an adjustment which can not be explained by one of the other codes Enter the expense of sale or the appropriate adjustment amount in column (g) In our earlier example on entering the sale of the main home, we did not include an O in column (b) even though we had cost of sales in our adjustment, so we need to make that correction. Now or column (b) entry likes like H O or H,O. We wont tell IRS they also blew it in the example they gave

Code Summary B – Basis wrong on 1099-B T – Type gain or loss wrong N – Nominee H – Sale of main home S – Small business stock X – Excludible gain under rules R – Rollover of gain from QSB stock W – Wash sale nondeductible L – Nondeductible loss other than Wash sale O – Other adjustment

First Started Out With These Codes A – Main Home B – Basis wrong low C – Basis wrong high D – Type wrong AV – Elect average basis AR – Disallowed - at risk PA – Disallowed passive W – nondeductible – wash sale E – nondeductible personal use asset F – not AR, PA, W, E G - Publicly traded securities H – ESOP I – QSB J – Rollover of gain QSB EZ – Qualified empowerment zone Obsolete

Some Exceptions Exception to reporting on a separate Line – Can report on an attached statement Must contain same info that is on 8949 in similar format Use as many statements as needed – LT, ST, Box A, B and C thing Enter combined totals on Form 8949 – Same rules regarding LT, ST, Box A, B and C thing e.g. report on line 3, form 8949, Box A checked, all LT gains and losses broker reports on statement which are also reported to IRS Each brokerage report goes on a separate line. – Do not enter “available on request.” in lieu of reporting the details of each transaction on 8949 or attached statement

Some Exceptions (Cont’d) E-file – And chose not to include transactions electronically Attach 8949 or statements to Form 8453 and mail. Charitable gift annuity – 1099-R received, an amount in box 3 – Report amount in line 3 on 8949, Box C checked “1099-R” in column (a), Box 3 amount in column (e) Canadian registered retirement plan – Beneficiary or annuitant of a Canadian registered retirement plan – Enter any amount from Form 8891, line 10(d),Report amount in line 1 or line 3 on 8949, Box C checked “Form 8891” in column (a), line 10(d) amount in column (e)

Some Exceptions (Cont’d) Other gains or losses where sale price or basis is not known (e.g. LTG from Form 8621) (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) – Enter a description of the gain or loss in column (a), Form 8949, Box C checked – Enter gain in column (e) – Enter a loss in column (f) – Complete other columns you can. Rounding off to whole dollars – Round one, round all – >