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Cost Basis

For more information about the IRS changes, see our New IRS Cost Basis Reporting Guide. You may also contact one of our Investor Representatives at 1-800-873-8637 with general questions.

Reminder: Information provided here is neither tax nor legal advice and is general in nature. You should consult your tax advisor, financial advisor or local taxing authority for specific information regarding your tax situation as every tax situation is different. Federal and state laws and regulations are subject to change and may have a material impact on pre- and/or after-tax investment results. U.S. Global Investors Inc. and the U.S. Global Investors Funds disclaim any liability arising out of your use of, or any tax position taken in reliance on, such information.

What type of funds and accounts will report cost basis?
  • The IRS regulations affect only taxable accounts (accounts for which a Tax Form 1099-B is generated).
  • Cost basis will not be provided on retirement, non-profit, or business accounts (except for S corporations), or accounts with only money market funds.
Why can’t I elect to track cost basis on my retirement account?
  • The IRS does not require that mutual fund companies track cost basis on retirement accounts (e.g., IRAs, Roth IRAs).
  • However, if you made nondeductible contributions to your IRA, you may need to determine your cost basis.
  • See IRS Publication 590 for guidance or consider speaking to a tax advisor.
When do I have to decide on a cost basis method?
  • Per IRS regulations, all existing shareholders must have a cost basis method associated with their account(s) by January 1, 2012.
  • U.S. Global Investors will automatically assign the Average Cost method to all existing and future accounts. No action is required to keep Average Cost as your cost basis method.
  • If you want to select a method other than Average Cost, please complete the Cost Basis Election Form or log on to your account.
What is a future cost basis election?
  • The future cost basis election will be used for any funds/accounts established in the future (via a purchase, exchange, or transfer).
  • U.S. Global Investors will automatically assign the Average Cost method to all future accounts. No action is required to use Average Cost as your future cost basis method.
  • If you want to select a method other than Average Cost for your future accounts, please complete the Cost Basis Election Form or log on to your account.
What are covered and non-covered shares?
  • Covered shares are shares purchased on or after January 1, 2012. Tax Form 1099-B will provide cost basis information for covered shares to both the shareholder and the IRS.
  • Non-covered shares are shares purchased by a shareholder on or before December 31, 2011. Non-covered shares will continue to be reported as they have in the past – only the gross proceeds will be reported to the IRS.
  Covered Non-Covered
Purchase date: On or after 01/01/2012 On or before 12/31/2011
Form 1099-B reporting — shareholder Cost basis information
will be provided
If available, cost basis
information will be provided.
Form 1099-B reporting — IRS Cost basis information
will be provided.
No cost basis information will be provided.
(Only the gross redemption amount will be
reflected on Form 1099-B).

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What if my account has both covered and non-covered shares?
  • Per IRS regulations, mutual fund companies are to treat the covered and non-covered shares within the same account as if they are in separate accounts (known as bifurcated accounts).
  • When you submit a redemption request, non-covered shares will be redeemed before covered shares unless you specifically identify covered shares using the specific lot identification method.
  • Because covered and non-covered shares are treated as if they are in separate accounts, wash sale reporting will be affected.
How will covered and non-covered shares be reported on my Tax Form 1099-B?
  • Your Tax Form 1099-B will display whether redemptions consist of covered and/or non-covered shares.
  • You can see the following possible combinations of history for each redemption:
    • Covered shares, long-term (held longer than one year)
    • Covered shares, short-term (held one year or less)
    • Non-covered, long-term
    • Non-covered, short-term
    • Unknown
Will you determine if a sale results in a capital gain or loss?

Although we will report cost basis for the sales (or exchanges) of covered shares to the IRS, you will be responsible for reporting capital gain or loss information for both covered and non-covered shares to the IRS.

What methods can be used to calculate cost basis (for covered shares)?

The IRS has approved the following methods to calculate cost basis for covered shares.

Method Description
Average Cost This method calculates an Average Cost per share by dividing the total of all investments (including reinvested dividends and capital gains) by the total number of shares in the account.
Note: This method will be the default method chosen for your covered shares. No action is required to select this method.
First-In, First-Out (FIFO) Shares purchased first (the oldest shares in the account) are the first shares sold.
Last-In, First-Out (LIFO) Shares purchased last (the newest shares in the account) are the first shares sold.
High-Cost, First-Out (HIFO) Shares purchased at the highest price per share are the first shares sold (regardless of purchase date).
Low-Cost, First-Out (LOFO) Shares purchased at the lowest price per share are the first shares sold (regardless of purchase date).
Loss/Gain Utilization Shares are sold with the objective of minimizing gains. Shares that represent a loss are sold before shares that represent a gain.
For shares that yield a:
  • Loss - Shares owned one year or less (short-term shares) will be redeemed before shares owned more than one year (long-term shares).
  • Gain - Long-term shares will be redeemed before short-term shares.
Specific Lot Identification (SLID) Specific shares are selected by the shareholder each time shares are sold.
Important: A secondary method is required in the event the lots you have chosen are not available. You can select one of the following:
  • FIFO—Will be used if no secondary election is made.
  • LIFO
  • HIFO
  • LOFO
  • Loss/Gain Utilization
How can I make my initial cost basis election?
  • The Average Cost method will be automatically assigned to your accounts.
  • If you do not want to use the Average Cost method, you can select an alternate method by doing one of the following:
  • Due to IRS regulations, a telephone request to make your initial cost basis election cannot be accepted.
What if I want to change my cost basis method?
  • You can change your cost basis method at any time.
  • Changes to or from the Average Cost method (including your initial election) must be made by doing one of the following:
Are there any restrictions to changing my cost basis methods?
  • There are no restrictions when changing to or from non-average cost methods.
  • If you decide to change to or from the Average Cost method, your change will be processed as a revocation if made within the revocation period which is the earlier of:
    • December 31, 2012
      -or-
    • The first sale of covered shares (a redemption of non-covered shares will not affect your revocation period)
  • Changing your method during the revocation period allows you to apply your newly elected method(s) retroactively to all covered shares.
What if I make my change from Average Cost after the revocation period ?
  • If you change from the Average Cost method after the revocation period, your newly elected method will apply only to covered shares purchased after you update your method.
  • Covered shares that were purchased prior to the change will retain the Average Cost method.
If I submit a transaction request and don’t make a cost basis method election, will the request be considered “not in good order?”
  • No. If you submit a request (e.g., redemption, purchase into a new fund), the transaction will be processed using the cost basis method on your account. If you never made a cost basis election, the Average Cost method will be used.
  • If shares are received as a transfer and the cost basis is unknown, the shares will be treated as non-covered.
Why is a secondary method needed if I choose the specific lot identification method (SLID)?
  • When you request a redemption using the SLID method, you must identify specific “lots” or shares. If the lots are not sufficient to complete your redemption request (e.g., due to market fluctuation or a previous transaction), an alternate lot will be identified using the secondary method that you’ve selected.
  • FIFO automatically will be used if you do not elect a secondary method.
What is a wash sale?
  • The IRS does not allow you to deduct losses from sales resulting in a wash sale.
  • A wash sale occurs when you sell or trade stock or securities at a loss within 30 days before or after you buy or acquire substantially identical stock or securities.
  • Refer to the IRS website for more details on wash sales.
How will wash sales be reported?
  • Covered and non-covered shares will be treated as if they are in separate accounts.
  • Uncovered shares that are redeemed at a loss cannot be washed against covered repurchased shares and vice versa for cost basis reporting purposes.
  • Although you are required to comply with the IRS wash sale rules for sales of securities that are substantially similar, mutual fund companies are required to report wash sales only when the securities involved have the same CUSIP number and when the sale and repurchase occur in the same account.
  • Consider speaking to a tax advisor for guidance and assistance with reporting wash sales.
What is an S corporation?
  • The IRS defines S corporations as corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes.
  • To qualify for S corporation status, the corporation must meet the following requirements:
    • Be a domestic corporation
    • Have only allowable shareholders
    • Have no more than 100 shareholders
    • Have one class of stock
    • Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations)
  • See the S corporations section of the IRS website for more information.
  • U.S. Global Investor Representatives are unable to determine your corporation’s status. Please consider speaking to a tax advisor.
How will tax reporting change for S corporations?

Due to IRS regulations, a Tax Form 1099-B will be issued for S corporations when a sale of covered shares occurs.

How will U.S. Global Investors determine if my corporation is an S corporation?
  • A letter was mailed out to corporations in June of 2011. The letter requested that a Form W-9 be completed and returned to us indicating your company’s corporate status.
  • If the Form W-9 was not returned, your corporation’s account was coded as an S corporation.
How do I change my corporation’s status?

To update your company’s status, please complete and return a Form W-9 to:
U.S. Global Investors
P.O. Box 659405
San Antonio TX 78265-9604

Where can I learn more about the cost basis reporting changes?

You can learn more by accessing the Cost Basis Reporting Overview and FAQs section of the IRS website.

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