General FAQs involving FATCA .  See KB2601 for other FATCA related FAQ topics.

Introduction

Client should hit “Submit” button after all personal information is completed. Assuming no entry errors have been made, the client will be directed to Page 2 (tax form).

Screen 1

Important: To change the pre-populated information on the W-9, the client MUST hit the back button and change the relevant information on the prior page for the tax form to be updated.

In the Part II Certification section of this screen, the client will need to review and check the boxes that apply.

Important: The first 3 boxes on the W-9 under certification must be checked to avoid having the client subject to back up withholding.

 

 

Next, the client will need to provide an electronic signature by typing their name (i.e., account title) exactly as it appears on the screen and select the “Save and Continue” button. The client will then be taken to the confirmation screen which will list any documents that they need to send to the broker.

 

 

Screen 2 (W-8BEN)

A W-8BEN will be show if the client selected any tax residency other than U.S. At the top of the tax form will be shown any U.S. or U.K. connections (e.g., U.S. address, telephone number, place of birth or crown dependency address) identified and tasks necessary to resolve it.

 

Example of U.S. address / telephone number problem

 

 

Example of U.S. place of birth.

 

 

The client must answer the questions by selecting the appropriate radio button. Many of these require document submissions to resolve the connection and the condition is not resolved until the appropriate documentation is provided. If a document is required, the client will be notified of this information once the form has been completed.

 

Information on Part I of the W-8BEN will be pre-populated based on the information provided on the prior page. Generally, the information cannot be edited with the exception of U.S. taxpayer identification number. This may be updated by the client.

 

Important: The client MUST hit the back button and change the relevant information on the prior page for the tax form to be updated.

 

 

On Part II of the W-8BEN the client will be prompted to specify whether they are a resident of a country which maintains a tax treaty with the U.S. Only those countries with which the U.S. maintains a treaty will be shown on the drop-down list and if the client does not see his or her treaty country, the client should select “N/A” or “I am not resident in a treaty country.”

Important: The system will flag a problem if the client’s mailing or permanent address is outside the treaty country which they have specified. In this case, the client will need to explain the reason for the non-treaty country address on the form and will be prompted afterwards to submit a proof of address and proof of identity from the treaty country for the claim to be valid. Client who cannot comply will not be afforded treaty benefits per IRS rules.

 

 

On Part III of the W-8BEN the client will be prompted to certify that the information provided on the form is accurate by checking the boxes and providing an electronic signature by typing their name (i.e., account title) exactly as it appears on the screen.

The client will also be prompted to acknowledge that the treaty benefits being claimed have remained unchanged since the date of their last tax form certification. This affidavit also requires entry of an electronic signature.

The client will then be prompted to check the box through which they consent to electronic collection and delivery of tax forms and then select the “Save and Continue” button. The client will then be taken to the confirmation screen which will list any documents that they need to send to the broker.

Final Review & Document Request

Once the form has been completed, it is subject to review by IB for purposes of verifying the client’s stated tax residency. This review may generate discrepancies in one of the following three areas: U.S. Connection, Treaty Claim or U.K. Crown Connection. If a client account is flagged for any discrepancy, you will need to contact them and request documents to resolve. The steps for resolving each of these is as follows:

IB will send a periodic report listing clients who have tasks which need to be completed so that you may contact them to act. This will include those accounts who have not logged into Account Management to complete the Tax Form or who have completed the form but need to send in documentation.

EXHIBIT 1 – Tax Form Prompt – U.S.

Proceeds from broker and barter exchange provides the sales proceeds from multiple transactions, including sales, exchanges, covered options, and tender offers on page 2 of the Consolidate Forms 1099.

1099-B Proceeds from broker and barter exchange reporting is made up of four separate sub-sections on the 1099-B Summary Page.  The first three sections are separated based upon cost basis reporting regulations, while the fourth section includes Regulated Futures, Section 1256 contracts. 

1. Covered Securities with Short-Term gains or losses.
2. Covered Securities with Long-Term gains or losses.
3. Noncovered Securities. 
4. Regulated Future Contracts and Options.

IRS regulations classify covered and noncovered securities as outlined in the table below:

1099-B Summary Page

Transaction details appear following the Consolidated Forms 1099- Summary page.  Boxes 1d to 1g of the 1099-B report the combined total for securities classified within sections one through three.  Interactive Brokers includes cost basis reporting to the IRS for covered securities.  Noncovered securities are exempt from broker cost basis reporting due to either designation or unknown information.

1099-B Sub Sections

1. Covered Securities with Short-Term gains or losses

Section one reports proceeds and cost basis information for covered securities with a short-term gain or loss.  Grouped by their unique security identification number (CUSIP or ISIN), these covered securities correspond with the Worksheet for Form 8949 Part I Short-Term Capital Gains and Losses - Assets Held One Year or Less, Box A. 

Box 1e reflects the original or adjusted cost basis.  If applicable, a cost basis adjustment code may appears under Box 1f within the section's transaction details that follow the Summary.

2. Covered Securities with Long-Term gains or losses

Section two reports information for transactions of covered securities with a long-term gain or loss.  Also grouped by security identification number, these assets correspond with the Worksheet for Form 8949 Part II Long-Term Capital Gains and Losses - Assets Held More Than One Year, Box D.

3. Noncovered Securities

Section three reports transaction of non-covered securities including index options without determination of holding period.  Securities under this section include transactions for which the cost basis is not known or not reportable by Interactive Brokers to the IRS.  Based on personal records, the taxpayer must report the cost basis and determine the short or long term.

These assets correspond with the Worksheet for Form 8949 Part I Short-Term Capital Gains and Losses, Box B, as well as Part II Long-Term Capital Gains and Losses, Box E.

4. Regulated Future Contracts and Options

We are required to report the aggregate profit/loss in four components under Boxes 8 to 11, even though taxpayers only report the aggregate profit/loss from regulated futures.

All settled or closed contracts during the tax year are displayed in Box 8.  Any unrealized profit or loss at the beginning of the year (Box 9) and at the end of the year (Box 10) is adjusted from Box 8 to report an aggregate profit or loss on all contracts, open or closed, in Box 11.

For a contract level profit and loss summary, we include a Gain/Loss Worksheet for 1256 Contracts as part of our Year End Reports.  There is one section for Futures and one section for Options. 

Important Points

• Wash Sales: Brokers take into wash sales with calculating cost basis and holding period for covered securities within an account.  The amount of the disallowed loss and the subsequent cost basis adjustment will be reported.  For an understanding of wash sale basics, click here.
• Bond/Option: Bond and option purchases became covered securities as of January 1, 2014.
• Form 8949 Worksheet: Transactions not reported to the IRS on Form 1099-B may be included on your 8949 Worksheet, along with details for each 1099-B transaction.
• Multiple Trading Account: Each of these reports is specific to the account associated with the report, however the tax code requires you to report on your tax return across all of your trading accounts. If you hold the same security in multiple accounts and sell it, the gain or loss calculated and reported to the IRS may be different than presented on an account level and must be adjusted.
• Tax ID Numbers: An IRS identity protection ruling allows truncated reporting of tax ID numbers on 1099s.  Account tax ID numbers display the last four digits (XXX-XX-0123) on Interactive Brokers tax forms. 

Dividend and Distribution Income received by you from securities are reported on the 1099-DIV, The corresponding transaction details in the annual Dividend Report breakout dividends earned by tax category, which is available in Account Management from the Reports > Tax > Tax Forms page.  

Total Ordinary Dividends

Box 1a includes all dividend distributions from stocks, mutual funds, REITS, and UITS by U.S. and non-U.S. issuers.  This includes money market and bond dividend income.

Short-term capital gains distributions paid by mutual funds are included under Box 1a, but not under Box 2a.

Qualified Dividends

Box 1b reports the portion of total ordinary dividend income from Box 1a which may be eligible for qualified dividend treatment. Qualified dividends are taxed at the Long-term Capital Gain (LTCG) tax rate (0%, 15%, & 20%).  Consult a qualified tax adviser to verify your eligibility.

Total Capital Gains Distributions

Box 2a reports any long-term capital gain distributions paid by mutual funds and REITS.  Short-term capital gains distributions are reported under Box 1a.

Unrecaptured Section 1250 Gain

Box 2b includes real property depreciation recapture from the capital gains distributions under Box 2a, if any.  

Non-dividend Distributions

The total amount of payments classified as a return of capital paid to you is reported in Box 3.  A reduction to the cost basis of security is occurs.  This may include mutual funds, REITS, WHFITS, and corporations.

Federal Income Tax withheld

Any U.S. income tax withheld from a dividend distribution is reported under Box 4.

Investment Expenses

Your portion of investment expenses from UIT, WHFIT, and WHMT investments is reported under Box 5.   These expenses may be deductible, subject to the 2% limitation.

Foreign Tax Paid

Box 6 reports foreign tax paid, including foreign tax withheld from foreign source dividends.  This is usually attributed to a mutual fund's investment in foreign securities.  As a supplement to assist with your tax preparation, a summary of foreign dividends and tax paid on them is displayed on the annual Dividend Report.

Liquidation Distributions

Reducing your cost basis, Boxes 8 and 9 report payments as a result of  mergers or acquisitions.  Any amount of a cash payment not classified as a dividend or exceeding your basis is considered a capital gain.  Non-cash payments are a return of your investment and reduce your basis.

Exempt Interest Dividends

Generally, dividends paid by tax-exempt bond funds are listed on Box 10.  Any portion of Box 11 payments classified as Specific Private Activity Bond Interest reported to calculate AMT.

Note:

IRS Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Circular 230 Notice:
Important: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.