Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, is an IRS form used to report the sale of securities, commodities, and other transactions by brokers and barter exchanges. This form is crucial for taxpayers as it details proceeds from sales that must be reported on their tax returns. Here’s a comprehensive guide to understanding Form 1099-B, based on official IRS guidelines.
Who Must File Form 1099-B?
Brokers and barter exchanges are mandated to file Form 1099-B.
Brokers: A broker is defined as someone who, in the ordinary course of business, is ready to facilitate sales made by others. This includes entities that:
- Sell stocks, commodities, and securities for cash on behalf of clients.
- Handle stock acquisitions due to corporate control changes or capital structure changes.
- Regularly issue and retire their own debt obligations.
- Corporations that regularly redeem their own stock.
Barter Exchanges: These are organizations where members or clients contract to exchange property or services.
Qualified Opportunity Funds (QOFs): QOFs must report dispositions of interests in the fund, regardless of who made the disposition.
What Transactions are Reported on Form 1099-B?
Form 1099-B is used to report various types of transactions, including:
- Sales of Securities: This includes stocks, bonds, options, and securities futures contracts.
- Commodities and Futures Contracts: Regulated futures contracts, foreign currency contracts, and forward contracts.
- Barter Exchange Transactions: Exchange of property or services through a barter exchange.
- Qualified Opportunity Fund (QOF) Dispositions: Any disposition of interest in a QOF, including sales, gifts, or inheritances.
- Corporate Actions: Transactions where a corporation’s stock is acquired in a control acquisition or substantial capital structure change.
Key Sections and Boxes of Form 1099-B
Understanding the different boxes on Form 1099-B is essential for both filers and recipients.
Payer, Recipient, and Account Information:
- Includes details of the broker or barter exchange (payer) and the customer (recipient), along with the account number.
- There’s also a checkbox for FATCA filing requirements for Foreign Financial Institutions (FFIs) reporting to U.S. accounts.
Applicable Checkbox on Form 8949:
- Uses codes (A, B, D, E, X) to help recipients report transactions on Form 8949 and Schedule D, indicating short-term or long-term gains/losses and whether cost basis is reported to the IRS.
Box 1a. Description of Property:
- Details the asset sold, such as stock names and number of shares, descriptions of options, futures contracts, or bartered services.
- For corporate actions, it includes the corporation’s name and shares exchanged.
Box 1b. Date Acquired:
- Reports the acquisition date of the security. This is left blank if securities were acquired on various dates or if Box 5 (Noncovered Security) is checked and basis is not being reported.
Box 1c. Date Sold or Disposed:
- For broker transactions, this is the trade date. For barter exchanges, it’s the date cash, property, or credit was received.
Box 1d. Proceeds:
- Shows the gross cash proceeds from dispositions, reduced by commissions and transfer taxes. Losses are shown in parentheses.
- May or may not include option premiums, indicated by checkboxes in Box 6.
- Excludes accrued qualified stated interest, which is reported on Form 1099-INT.
Box 1e. Cost or Other Basis:
- Enters the adjusted basis of securities sold, especially for covered securities.
- Can be left blank if Box 5 is checked and the security is noncovered.
Box 1f. Accrued Market Discount:
- Reports the accrued market discount for applicable securities.
Box 1g. Wash Sale Loss Disallowed:
- Indicates any loss disallowed due to wash sale rules. This occurs when identical securities are bought within 30 days before or after selling at a loss.
Box 2. Type of Gain or Loss:
- Indicates whether the gain or loss is short-term or long-term, and if any portion is ordinary.
- “Ordinary” is checked for transactions that may result in ordinary income, such as foreign currency transactions.
Box 3. Check if Proceeds Are From Collectibles or From a QOF:
- “Collectibles” box is checked if proceeds are from collectibles.
- “QOF” box is checked for dispositions of Qualified Opportunity Fund interests.
Box 4. Federal Income Tax Withheld:
- Shows backup withholding, which may occur if the recipient hasn’t provided their Taxpayer Identification Number (TIN).
Box 5. Check if a Noncovered Security:
- Checked if the security sold is a noncovered security. When checked, boxes 1b, 1e, 1f, 1g, and 2 are not mandatory.
Box 6. Reported to IRS:
- Indicates whether gross proceeds are reduced by option premiums.
Box 7. Check if Loss Not Allowed Based on Amount in Box 1d:
- Applicable in cases of corporate control acquisition or substantial capital change where loss recognition might be limited.
Boxes 8-11: Regulated Futures Contracts, Foreign Currency Contracts, and Section 1256 Option Contracts:
- For brokers reporting aggregate profit or loss from these contracts.
- Box 8: Profit or (Loss) Realized in 2025 on Closed Contracts.
- Box 9: Unrealized Profit or (Loss) on Open Contracts—12/31/2024.
- Box 10: Unrealized Profit or (Loss) on Open Contracts—12/31/2025.
- Box 11: Aggregate Profit or (Loss) on Contracts.
Box 12. Check if Basis Reported to IRS:
- Checked if cost basis is reported to the IRS, which is typical for covered securities.
Box 13. Bartering:
- Reports the gross value of cash, property, services, credits, or scrip received in barter exchanges.
Boxes 14-16: State Information:
- For state tax information, relevant for participants in the Combined Federal/State Filing Program.
Covered vs. Noncovered Securities
A critical aspect of Form 1099-B is the distinction between covered and noncovered securities:
Covered Security:
- Stock acquired after 2010.
- Stock in dividend reinvestment plans acquired after 2011.
- Securities transferred to an account with a transfer statement identifying them as covered.
- Debt instruments, options, and securities futures contracts acquired after specific dates (2013 and 2015 depending on the type).
Noncovered Security:
- Securities that do not meet the definition of covered securities, often those acquired before the specified dates for covered security status.
- If Box 5 is checked for a noncovered security, reporting basis and holding period details is optional.
Understanding whether a security is covered or noncovered is crucial because it affects the reporting requirements for cost basis and capital gains. Brokers are required to report the cost basis for covered securities, simplifying tax reporting for recipients.
Special Cases and Rules
Short Sales:
- Form 1099-B reports details when a short sale is closed, including quantity, acquisition date, sale date, and basis of the security delivered to close the sale.
Wash Sales:
- When a wash sale occurs, the disallowed loss is reported in Box 1g, and this disallowed loss is added to the basis of the newly acquired securities.
Corporate Mergers:
- In mergers, if cash or property (“boot”) is received, it’s reported in Box 1d, and any basis reduction is reported in Box 1e.
Qualified Opportunity Funds (QOFs):
- Dispositions of QOF investments are specifically marked in Box 3, and relevant details like acquisition and disposition dates, proceeds, and descriptions are required.
Barter Exchanges – Transactional/Aggregate Reporting:
- For noncorporate members, each transaction is reported separately. For corporate members, aggregate reporting is allowed.
Exceptions to Filing Form 1099-B
There are several exceptions where brokers are not required to file Form 1099-B, although they may choose to do so:
- Sales for Exempt Recipients: Including charitable organizations, IRAs, corporations (with some exceptions for S corporations and covered securities), and government entities.
- Sales Initiated by Dealers and Financial Institutions.
- Sales by Custodians and Trustees reported on Form 1041.
- Sales of Money Market Fund Shares.
- Obligor Payments on nontransferable obligations like savings bonds, or obligations reported on other 1099 forms.
- Sales of Foreign Currency (unless under specific contracts).
- Sales of Fractional Shares if proceeds are under $20.
- Retirements of certain obligations issued before January 1, 2014.
- Sales for Exempt Foreign Persons.
- Sales of Commodity Credit Corporation Certificates.
- Spot or Forward Sales of Agricultural Commodities.
- Certain Sales of Precious Metals below minimum quantities for regulated futures contracts.
- Grants/Purchases of Options or entering into contracts for personal property delivery.
- Sales of Short-Term Obligations issued on or after January 1, 2014.
Statements to Recipients
Brokers and barter exchanges must furnish a Form 1099-B statement to recipients by a specified date, providing them with the same information reported to the IRS. This statement is crucial for recipients to accurately file their income tax returns.
Conclusion
Form 1099-B is a critical tax document for reporting proceeds from broker and barter exchange transactions. Understanding its components, who files it, what transactions it covers, and the specific rules for covered and noncovered securities is essential for tax compliance. Both payers (brokers, exchanges) and recipients need to be well-versed with Form 1099-B to ensure accurate financial reporting and tax obligations are met.
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Consult with a tax professional for personalized advice.
