Corrected Brokerage Statements

[S T]

Does any one know the answer to this.

Client's return completed, should not have received a corrected brokerage statement, but did. Minimal investments, brokerage house corrected the total dividends issued.

In reviewing the detail with the client from the original statement to the corrected statement, we found that the brokerage house entered a dividend posted on 1/15/09.

Question, does the brokerage house base their reporting (1099 DIV) on the date the dividend is declared on the investment, or on the date that they actually receive the dividend and post it to the client's account?

Client is already upset with brokerage house as he had a trade that was exercised on 12/30/08, but they are not posting until 1/3/09 and it was a loss that he wanted to use on 2008.

Sandy

[Koss]

Transaction Date

With respect to dividends, there are actually four different dates:

(A) The date the company declares, or formally announces the dividend;

(B) the ex-dividend date. If you don't own shares of the stock on this date, you don't get the dividend. (And if you are short the stock on this date, you actually have to pay the dividend to your broker. But that's another ball of wax...)

(C) the date the company pays the dividend to the broker;

(D) the date the broker deposits the funds into the shareholder's account.

In most cases, C and D should be the same date, or only one business day apart. The broker cannot hold the funds without a good reason.

When the shares are held in "street name," which means that there is no stock certificate, and the shares are held in an electronic form, by the broker, for the individual shareholder, then the broker is technically the shareholder.

The payment of the dividend is a taxable event when the broker receives the funds--that is, date C.

Shareholders who actually have paper stock certificates, or those who are enrolled in some sort of DRIP, where they have an account with the company's transfer agent, get their dividends directly from the company in the form of a paper check, or a direct deposit, or a credit to the DRIP account.

So it's a little bit like the last paycheck of the year for a wage-earner. If they insist on a nineteenth-century-style paper paycheck, they may not get the check until January 2 or January 3, 2009. But the employer issued the check on December 30, 2008, and that means that the income will be reflected on the 2008 Form W-2.

For ordinary sales of stock, it's a little bit simpler. There's a trade date and a settlement date. The trade date is the date of the transaction, and the settlement date is the date by which the seller must deliver the stock to the buyer.

The event is taxed based on the trade date.

Option exercises, tender offers, buyouts, mergers, and other kinky transactions that involve employee stock plans or employee stock options play by very different rules. Sometimes the controlling date is determined by a prospectus or other legal instrument that sets forth the terms of the offer.

What I described above are general rules for dividends and stock trades in an ordinary retail brokerage account. If your client "exercised" something that he thought was "happening" on 12/30, but they are not posting it until 01/03, it might have been something other than an ordinary retail transaction. Or maybe not... the broker or their computer systems might be getting it wrong... You'll need to dig a bit deeper.

This is probably more of an answer than you wanted, but anything is possible. 2008 was a leap year. That has no impact on the basic rules for taxation. But some older computer systems had a really hard time grasping the idea that 2008 had 366 days instead of 365...

Anyone read about how all those Zunes went dead?

[LOL]

BMK

[Jesse]

Anyone read about how all those Zunes went dead?

[LOL]

BMK

Off topic - no what's that about?

[DaveO]

A Turbo Tax "Super User"? Isn't that sort of like the richest man on skid row?

[JohnH]

Jesse:

I read that Dec 31, 2008 some early-generation Zunes automatically rebooted and then promptly froze up. The problem was traced to an infinite loop in the way the clock driver calculated years based on the number of elapsed days. The 2008 leap year scrambled their brains and the "fix" was to drain the battery and then recharge it after 12 noon on Jan 1, 2009. Koss was referring to this mix-up in the suggestion that some brokerage houses may have suffered from a similar type of bug in their software.

[Jesse]

Thanks for the insight - interesting!

[JSLATER]

Does any one know the answer to this.


In reviewing the detail with the client from the original statement to the corrected statement, we found that the brokerage house entered a dividend posted on 1/15/09.

Question, does the brokerage house base their reporting (1099 DIV) on the date the dividend is declared on the investment, or on the date that they actually receive the dividend and post it to the client's account?

Sandy

To throw a little twist into your question, REIT's pay dividends in Jan that are from the previous tax year and will show on the 1099 DIV as received in Jan, but are recorded as 2008 income. Oil and gas royalty trusts, such as San Juan and Permian also pay in January, but the payment is considered as previous year income and is USUALLY reported that way. I have a feeling your client has the same broker as some of mine.

[S T]

Trades

Thanks Burton for the information. Will be useful in talking with the Brokerage House.

The trade was just an ordinary trade, so it should have been posted on 12/30. T/p has the confirmation.

Thanks JSlater, about the REIT info, the January item could be just that.

Sandy