Cost Basis Summary
When you sell or exchange shares of a mutual fund or other securities, you may have a capital gain or loss that must be reported to the IRS. To calculate the gains or losses from shares sold, you must know the cost basis, or the original price paid, for the different shares you own. Any transaction that increases or decreases the number of shares in an account can affect cost basis.

In October 2010, the Internal Revenue Service (IRS) issued new mandatory regulations regarding cost basis for many types of securities, including mutual funds. Under the new regulations, mutual funds are now required to report cost basis information to the IRS.

The effective date for shareholders of mutual funds was 1 January 2012. The new cost basis regulations treat mutual fund shares acquired after the effective date as “covered shares.” Mutual fund companies will now report the cost basis for all covered shares in taxable (non-retirement) accounts to both you and the IRS. When filing your tax return, you will be required to use the cost basis reported on your 1099-B for your covered shares.

Mutual fund shares acquired before the effective date are considered non-covered, meaning they are exempt from these reporting requirements. PIMCO will continue to provide cost basis information on non-covered shares to shareholders but it will not be reported to the IRS.

Two key provisions in the cost basis regulations may require action on the part of shareholders:

  1. Mutual fund companies must select a default method for cost basis reporting and notify you of its selection. PIMCO chose the average cost accounting method as the default for cost basis reporting. You may choose the same method as your fund’s default or you may choose any other cost basis reporting method. This election is good for all future transactions unless you either revoke or change the election.

  2. The regulation removes the exemption from Form 1099-B reporting by S-Corporations. As with individual shareholders, the mutual fund default election for S-Corporations is average cost, but you may select a different cost basis method if you choose. Be advised that in order to establish proper identification, all corporations must complete a W-9 form. CORPORATIONS THAT FAILED TO RETURN THE W-9 WERE DEFAULTED TO AN S-CORPORATION AND SUBJECT TO 1099-B REPORTING.