Merrill Lynch Step Security

[equinecpa]

My client bought and sold a Merrill Lynch Step Security. This is a security backed by stock -it bears interest and varying rates depending on how long you hold it.

The income was reported as other income on the 1099 int/div received from Merrill Lynch. It is interest isn't it?

The security was redeemed at a hefty loss (almost $5000), is there anyway the income can be used to offset the loss (not thinking it can but maybe there's something unique to this investment).

[Gary2]

I'd look for the prospectus.

[FEDUKE404]

STEP info

They act somewhat like a bond, but in reality are NOT a bond which may indicate why the proceeds were not called "interest."

Since the value can vary greatly over time and/or in a changing interest envirionment, and then factor in "early" sale versus waiting until maturity, the tax calculations could get interesting.....

http://www.totalmerrill.com/TotalMerrill/pages/ArticleViewer.aspx?TITLE=stepupnotes

[equinecpa]

Thanks for the input -now is not the time for "interesting" tax reporting LOL. Not on the 11th day of April. I'll call Merrill Lynch and see what they have to say.

[FEDUKE404]

Solution from the source

Thanks for the input -now is not the time for "interesting" tax reporting LOL. Not on the 11th day of April. I'll call Merrill Lynch and see what they have to say.

Good luck on getting any reasonable help from ML, especially on the last Monday of tax season - they don't have their logo as it is without underlying reasons.....

My guess (only!) is that this weird instrument acts something like an OID in that you may "lose" (or more accurately not receive?) a lot if you cash in your chips early.

Finding out exactly what your client PAID for this investment might clarify things greatly.

But I agree with you: Unless you can obtain a quick and concise answer I would extend and deal with this problem later. Well, if you're sitting around doing nothing for the rest of the week I guess I might envision a different scenario.

FE