Form 1099-B: Proceeds From Broker and Barter Exchange Transactions (2011)

What the Form Is For

Form 1099-B is an information return that reports the sale of stocks, bonds, mutual funds, commodities, and other investments you made through a broker or barter exchange during the tax year. Think of it as a receipt from your broker documenting every time you sold an investment—whether you made money or lost money on the sale.

If you sold investments in 2011, your brokerage firm (such as Fidelity, Charles Schwab, TD Ameritrade, or any other broker) was required to send you a copy of Form 1099-B by February 15, 2012, and file a copy with the IRS by February 28, 2012 (or April 2, 2012, if filed electronically). The form shows critical details including the date of sale, the amount you received (proceeds), and—new for 2011—potentially the cost basis (what you originally paid) and whether any losses were disallowed due to wash sale rules.

The 2011 tax year marked a watershed moment for investment reporting. For the first time, brokers were required to report not just how much you received when you sold an investment, but also what you paid for it and whether your gain or loss was short-term or long-term. This change was designed to make it easier for taxpayers to accurately report capital gains and losses, while also helping the IRS verify that all investment income was properly reported.

When You’d Use Form 1099-B

Late Filing Scenarios

You didn't receive your Form 1099-B: Contact your broker immediately. Brokers are required to send these forms, and you cannot accurately complete your tax return without knowing what transactions occurred. If you still haven't received it by your filing deadline, you may need to request an extension using Form 4868.
You need more time to sort out basis issues: The 2011 tax year was the first year of expanded cost basis reporting, and many taxpayers found discrepancies between their records and what brokers reported. If reconciling these differences takes time, you may need to file for an extension.

Amended Return Situations

You received a corrected Form 1099-B: Brokers sometimes issue corrected forms (marked "CORRECTED") if they made an error. If you already filed your return, you'll need to file Form 1040X, Amended U.S. Individual Income Tax Return, to correct your reported capital gains or losses.
You discovered you misreported transactions: Perhaps you incorrectly calculated your basis, forgot to report a wash sale loss adjustment, or made another error. You should file Form 1040X to fix these mistakes.
Broker failed to report a transaction: If you later discover a sale that should have been reported but wasn't on your Form 1099-B, you need to amend your return to include it.

Amendment Deadline

Generally, you have three years from the date you filed your original return (or two years from the date you paid the tax, whichever is later) to file an amended return claiming a refund.

Key Rules or Details for 2011

Cost Basis Reporting Revolution

For the first time, brokers were required to report the cost basis (what you paid for the investment) for certain securities acquired after 2010. This means the form now includes new boxes showing:

Box 1b: Date of acquisition (when you bought the investment)
Box 3: Cost or other basis (what you originally paid)
Box 5: Wash sale loss disallowed (losses you can't claim due to wash sale rules)
Box 8: Type of gain or loss (short-term or long-term)

Covered vs. Noncovered Securities

A critical distinction emerged in 2011: covered securities versus noncovered securities. Understanding this difference is essential:

Covered securities include stock acquired for cash in an account after 2010. For these, brokers must report all the detailed information in boxes 1b, 3, 5, and 8.
Noncovered securities include stock purchased before 2011, certain mutual fund shares, and securities for which brokers were not required to track basis. For these, brokers could check Box 6 and leave the basis and acquisition date boxes blank.

Note: Stock in mutual funds and certain regulated investment companies purchased after 2011 would become covered securities, but in 2011, most mutual fund shares were still noncovered.

Wash Sale Reporting

Under section 1091 of the tax code, if you sell a security at a loss and purchase substantially identical securities within 30 days before or after the sale, you cannot deduct that loss immediately—it's "disallowed" and added to the basis of the replacement securities. In 2011, brokers were required to track and report these wash sale adjustments in Box 5, but only if both the sale and repurchase occurred in the same account for covered securities with the same CUSIP number (a unique identifier for securities).

Multiple Forms for Single Transactions

One surprising rule: even if you sold all shares of a stock in a single transaction, you might receive multiple Forms 1099-B for that sale. Brokers were required to report sales on separate forms based on:

Covered securities with short-term gains/losses (held one year or less)
Covered securities with long-term gains/losses (held more than one year)
Noncovered securities (if the broker chose to segregate them)

Filing Deadlines and Penalty Relief

Recognizing that 2011 was a transition year, the IRS provided penalty relief for certain reporting errors. Brokers would not be penalized for failure to provide complete information on noncovered securities as long as they checked Box 6.

Step-by-Step (High Level)

Step 1: Receive and Review

When your Form 1099-B arrives (by mid-February), carefully review each form. You may receive multiple forms from the same broker if you had different types of transactions. Check for:

Accuracy of sales dates and proceeds
Whether Box 6 is checked (noncovered security)
If not noncovered, verify the acquisition date and cost basis match your records

Step 2: Gather Your Records

Collect your purchase confirmations, previous account statements, and any records of reinvested dividends or other basis adjustments. For noncovered securities (Box 6 checked), you're responsible for providing the cost basis—the broker didn't track it.

Step 3: Report on Form 8949

For 2011, the IRS introduced Form 8949, "Sales and Other Dispositions of Capital Assets." This form replaced the old Schedule D-1 and works as a detailed worksheet. You'll list each transaction from your Form 1099-B on the appropriate part of Form 8949:

Part I: Short-term transactions (assets held one year or less)
Part II: Long-term transactions (assets held more than one year)

Within each part, you'll further separate transactions based on whether basis was reported to the IRS.

Step 4: Transfer Totals to Schedule D

After completing all necessary pages of Form 8949, transfer the totals to Schedule D (Form 1040), "Capital Gains and Losses." Schedule D combines your short-term and long-term gains and losses to calculate your net capital gain or loss.

Step 5: Calculate Tax Impact

Your net capital gain may qualify for preferential tax rates (0%, 15%, or 20% in most cases for long-term gains), while short-term gains are taxed as ordinary income. Net capital losses can offset other income up to $3,000 per year, with excess losses carried forward to future years.

Step 6: Include with Your Return

Attach Form 8949 and Schedule D to your Form 1040 when you file. Keep your Forms 1099-B with your tax records—don't attach them to your return, but retain them in case of IRS questions.

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting Noncovered Security Basis

If Box 6 is checked on your Form 1099-B, the broker didn't report your cost basis to the IRS. Some taxpayers mistakenly leave the basis column blank on Form 8949, which makes it appear they had a 100% gain—resulting in vastly overpaid taxes. Always fill in your actual cost basis from your records, even if the broker didn't report it.

Mistake #2: Double-Counting Wash Sales

Your Form 1099-B might show a wash sale adjustment in Box 5. This amount is also included in the basis reported in Box 3. Don't subtract it again when reporting on Form 8949, or you'll incorrectly inflate your basis and underreport your gain.

Mistake #3: Reporting Short-Term as Long-Term (or Vice Versa)

Box 8 tells you whether the gain or loss is short-term or long-term, but for noncovered securities, this box might be blank. You must determine the holding period yourself based on when you bought and sold the asset. Remember: you must hold an asset for more than one year for it to qualify as long-term.

Mistake #4: Forgetting About Reinvested Dividends

If you had dividends automatically reinvested to purchase additional shares, those reinvestments increase your basis. For noncovered securities, brokers weren't required to track this, so you must add up all reinvested dividends yourself to avoid overpaying taxes.

Mistake #5: Ignoring Corrected Forms

Brokers sometimes issue corrected Forms 1099-B. If you receive one marked "CORRECTED" after filing your return, don't ignore it. File Form 1040X to amend your return and correct the error.

Mistake #6: Not Reconciling Multiple Forms

If you received multiple Forms 1099-B for what seems like the same transaction (due to the separate reporting of short-term, long-term, and noncovered securities), make sure you report all of them. Missing even one form can trigger an IRS notice.

What Happens After You File

Routine Processing

After you file your return with Forms 8949 and Schedule D attached, the IRS computers match the information you reported against the Forms 1099-B that brokers filed. If everything matches, your return processes normally, and you'll receive any refund due or a bill for any additional tax owed based on your entire return.

IRS Matching Program

The IRS uses an automated system to compare what brokers reported on Forms 1099-B with what you reported on your return. Since 2011 was the first year of expanded basis reporting, the IRS focused heavily on ensuring taxpayers properly reported their investment sales.

If There's a Discrepancy

If the IRS finds a mismatch, you'll typically receive a CP2000 notice, "Proposed Changes to Your Tax Return," several months to over a year after filing. This notice explains the discrepancy and proposes additional tax, penalties, and interest. Common reasons for these notices include:

You reported a transaction but the amounts don't match the broker's Form 1099-B
The broker reported a transaction that you didn't include on your return
You made a mathematical error in calculating gains or losses

Responding to IRS Notices

If you receive a notice, don't panic. Read it carefully and compare it to your Forms 1099-B and your tax return. You have the right to:

Agree with the changes and pay any additional amount due
Disagree and provide documentation explaining why your reporting was correct
Partially agree and explain which parts are correct and which aren't

Always respond by the deadline shown on the notice (typically 30 days) to avoid additional penalties and interest.

Audit Considerations

While most returns are processed without audit, capital gains and losses are an area of IRS focus. Keep all supporting documentation for at least three years after filing (longer if you have carryover losses). This includes purchase confirmations, sale confirmations, Forms 1099-B, reinvestment statements, and records of any corporate actions like stock splits or mergers.

FAQs

Q1: I lost money on my investments in 2011. Do I still need to report my Form 1099-B?

Yes, absolutely. Even if you had losses, you must report all transactions shown on Form 1099-B. Capital losses can actually benefit you by offsetting other capital gains or up to $3,000 of ordinary income. Plus, excess losses carry forward to future years. Failing to report losses means giving up these tax benefits and risking IRS penalties for underreporting.

Q2: My broker's cost basis on Form 1099-B doesn't match my records. What should I do?

First, investigate why there's a difference. Common reasons include: reinvested dividends the broker didn't track, corporate actions like stock splits, or transfers from another broker. If your records are correct and more accurate, use your numbers on Form 8949 and attach a statement explaining the adjustment. Keep thorough documentation in case the IRS questions the discrepancy.

Q3: What if I sold stocks I inherited or received as a gift?

For inherited securities, your basis is typically the fair market value on the date of the deceased person's death (called "stepped-up basis"), and the gain is usually treated as long-term regardless of how long you held it. For gifts, you generally take the donor's basis and holding period. These securities were likely noncovered in 2011 (Box 6 checked), so you're responsible for determining and reporting the correct basis.

Q4: Can I use the average cost basis method?

For stock in mutual funds and certain other regulated investment companies acquired after 2011, you can elect to use the average basis method. However, for stock acquired in 2011, this option wasn't yet available for covered securities. Most investors used specific identification (choosing which shares to sell) or first-in-first-out (FIFO) methods.

Q5: I did day trading in 2011. Do I have to report every single trade?

Yes, each trade must be reported, which can result in dozens or hundreds of Forms 1099-B. You must list each transaction on Form 8949, though you can use summary reporting methods if you meet certain conditions. Consider using tax preparation software or hiring a professional if you have numerous transactions. Special rules may also apply if you qualify as a "trader" rather than an "investor" under IRS definitions.

Q6: What's a wash sale, and how does it affect my taxes?

A wash sale occurs when you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale. The loss is disallowed (you can't claim it currently) and instead is added to the cost basis of the replacement security. This rule prevents taxpayers from claiming losses while maintaining their investment position. Your broker may report wash sale adjustments in Box 5 of Form 1099-B if both transactions occurred in the same account.

Q7: I didn't receive a Form 1099-B for a stock sale. Do I still need to report it?

Yes. Even if you didn't receive a form (perhaps due to an exemption or broker error), you're still legally required to report all sales of securities. The IRS might not have received information from your broker, but that doesn't eliminate your obligation. Report the transaction on Form 8949 using the information from your transaction confirmations.

Additional Resources

This guide is for informational purposes only and should not be construed as tax advice. Consult with a qualified tax professional for guidance specific to your situation.