Brokers use IRS Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, to report the proceeds from the sale, transfer or exchange of securities, including:
- Stocks and funds
- Bonds and other debt instruments
- Futures contracts
- Options
- Commodities
- Foreign currency contracts
- Fixed investment trusts
- Short sales
- Partnership shares
The broker must file a multi-part Form 1099-B for each customer who has sold securities for cash, who bartered property or services, or has received stock or cash because of foreign merger or acquisition.
You Just Might Be a Broker If….
The IRS considers you a broker if you are in the business of transacting sales of securities offered by others. You can be an individual, American or foreign, a governmental unit or a company. You’re also a broker if you issue and retire debt obligations or are a company that regularly redeems its own stock. However, you’re off the hook if you manage a farm for someone else, your company buys only odd-lot shares from its stockholders on an infrequent basis, or you’re an international corporation that redeems its own debt. You may not have to fill out Form 1099-B in connection with the sale of shares arising from incentive stock options that are exercised on the same day as the shares are sold.
You also fill out Form 1099-B if you are a barter exchange, which is a person — or an organization that has a set of members — who jointly trades or barters property/services. This doesn’t include the exchange of information for noncommercial purposes. You don’t have to file if you do less than 100 transactions a year, if you’re an exempt foreigner, or if the transactions have a fair market value under $1.
The third category of transactions that trigger the need to file Form 1099-B is when a customer receives property, cash or stock from a corporation that must recognize a gain because of a takeover by a foreign company. These types of transactions must also be reported on Form 8806. If proceeds are paid in a foreign currency, you must report the amount in U.S. dollars using the spot exchange rate on or around the date the money is received.
Other filing exceptions are granted for a variety of reasons, including:
- Sales by charities, IRAs, health savings accounts, federal and state governments, and C corporations
- Sales by dealers, custodians and trustees
- Sale at the issue price of shares of certain regulated investment companies
- Sale of certain types and amounts of precious metals (not metal contracts)
- Sales of foreign currencies (not currency contracts)
- Debt-related transactions involving payments on savings bonds, CDs, retirement of OID securities issued prior to 2014, and callable demand obligations redeemed at par and issued before 2014
- Fractional shares worth less than $20
- Spot and forward sale of certain agricultural commodities
- Sales for exempt foreign customers
Filling Out the Form
Form 1099-B had a face-lift in 2014 so that it coordinates with Form 8949, Sales and Other Dispositions of Capital Assets, which the customer who receives a copy of 1099-B must file. The broker enters a code on the 1099-B matching the code from the applicable checkbox on Form 8948. Those codes are:
- A: Short-term transactions with reportable basis
- B: Short-term transaction not reported to the IRS
- D: Long-term transactions with reportable basis
- E: Long-term transaction not reported to the IRS
- X: Unknown holding period
The form requires the usually identifying information for the broker and the customer, including names, tax identification numbers and addresses. The form also records the customer’s account number and the CUSIP number of the security.
The required data for the sales transaction includes:
- Property description
- Dates acquired and sold
- Proceeds
- Cost basis and adjustments, such as market discounts and wash sales
- Code indicating a wash sale, the sale of a collectible, or a market discount
- Short- or long-term gain/loss
- Indication of whether the basis was reported to the IRS, and whether the gross or net proceeds were reported
- Federal income tax withheld
- Whether the security is non-covered, meaning the cost basis doesn’t have to be reported. This applies to certain complex debt instruments until 2016.
- Disallowed losses
- Realized profit/loss on closed contracts
- Unrealized profit/loss on open contracts
- Aggregate profit/loss on contracts
- Gross amount bartered
- State information, including state tax withheld
Filing Requirements
Form 1099-B is multi-part:
- Copy A goes to the IRS
- Copy 1 goes to a state’s tax department
- Copy B goes to the customer
- Copy 2 goes to the customer, who attaches it to a state tax return
- Copy C is the broker’s file copy
Brokers must send Copy B and Copy 2 to the customer by February 15. Paper versions of Copy A go to the IRS at the end of February, but electronic versions don’t have to go until the end of March. If the customer is a nonresident alien and you’ve withheld federal income tax, you must also file Form 1042-S.
Accompany your filings of Form 1099-B with the Form 1096, Annual Summary and Transmittal of U.S. Information Returns.
If you miss your filing deadlines, the IRS can assess penalties that can’t exceed $1.5 million per tax year. Brokers can relieve the stress of filing the very detailed form by purchasing Form 1099-B software to load the data and print/mail or electronically transmit the forms. An even easier solution is to use a service bureau to do the preparation and filing for you.
