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					Cost basis regulations
and your firm                                                               Inside

A resource guide to help you understand and
                                                                           Summary of the
prepare for the new IRS reporting requirements                             regulations             2

                                                                           What the regulations
Introduction                                                               require from
                                                                           Fidelity Investments    4
The Emergency Economic Stabilization Act of 2008 contains
new requirements for brokerage firms and mutual fund companies              How the regulations
                                                                           may impact your firm
regarding customer statements and Internal Revenue Service (IRS)
                                                                           and your clients        5
reporting. Specifically, the regulations, which were enacted to
                                                                           Options to consider
establish a $700 billion package in response to the financial crisis,
                                                                           for future cost basis
require an expansion of the current reporting on IRS Form 1099-B.          tracking                9

Currently, Fidelity Investments (Fidelity) provides information on gains   Getting ready with
and losses as supplemental information to investors on the 1099-B, but     Fidelity Investments    10

it does not report this supplemental information to the IRS. Under the     Conclusion              11
new regulations, Fidelity will be required to report adjusted cost basis
as well as gross proceeds to the IRS, and whether the holding period
of the disposed security was short-term or long-term. The objective of
the new requirements is to help ensure that investors accurately report
gains and losses of securities in their annual tax filings.

These new requirements will apply to holdings that are identified by
the IRS as “covered securities.” They will be phased in over a three-
year period beginning on January 1, 2011. The sample implementation
schedule, which we share with you on page 2, identifies which
securities are covered and when.

Brokerage firms, such as Fidelity Investments, bear the responsibility
of compliance with these new reporting regulations and could face
substantial penalties for noncompliance. However, the implementation
of these requirements may have meaningful implications for how you
manage various operational aspects of your practice.
This educational guide is the first of two cost basis       Summary of the regulations
guides that Fidelity plans to deliver to clients. It is
                                                           The Emergency Stabilization Act of 2008 requires
designed to help you do the following:
                                                           brokers, including Fidelity, to report adjusted basis
•   Understand key elements of the law, including the      (often referred to as “cost basis”) for “specified
    timing of its implementation and the securities that   securities” on the annual IRS Form 1099-B and to
    are covered                                            indicate whether the holding periods of disposed
                                                           securities were short- or long-term in nature. The
•   Understand specific ways your firm may be
                                                           legislation goes into effect over a three-year period,
    impacted by the legislation; to that end, we will
                                                           at which time specified securities are considered
    introduce you to two Fidelity clients who may need
                                                           “covered” under the law. The IRS defines specified
    to alter their operations for two reasons:
                                                           securities as those instruments described in the
    –   To continue providing the same or a higher level   implementation schedule below.
        of service to clients
                                                            SPECIFIED SECURITIES AND IMPLEMENTATION SCHEDULE
    –   To create an efficient process for managing cost
                                                            JANUARY 1, 2011
        basis data
                                                            All stock held in a corporation, except those for which average
•   Identify changes you may need to make to your           cost is permissible, acquired on or after the above stated date.
    workflow so you can avoid operational disruptions        Some adjustments to the original cost basis of equity securities
                                                            may include the following:
•   Feel confident that Fidelity will work with you to       • Adjustments associated with wash sales. For 1099-B reporting
    provide support in the following ways:                    purposes, wash sales include only those securities held
                                                              within one single shareholder account (instead of across
    –   Timely information about the details of the           accounts for the same shareholder) that have the same CUSIP
        regulations as they become known                      number (versus “substantially identical” securities, which may
                                                              have different CUSIP numbers). See page 3 for additional
    –   Guidance so you can more effectively and              information, where the rules applying to customers are
        efficiently adapt your workflows to help you
                                                            • Adjustments resulting from corporate actions
        meet the requirements of the new regulations
                                                            JANUARY 1, 2012
Our second guide, scheduled for release in the
spring of 2010, will provide a roadmap to assist you        Any stock for which average cost is permissible. This includes,
in implementing changes in your workflows. It will           but is not limited to, registered investment companies, including
                                                            open-ended mutual funds and shares in dividend reinvestment
also describe specific ways Fidelity can help you            plans (DRIPs) acquired on or after the above-stated date.
accomplish the transition.                                  Closed-end funds acquired on or after the above-stated date also
                                                            qualify as covered securities.
As you review this guide and begin to consider how
this legislation may impact your firm, we encourage          JANUARY 1, 2013
you to reach out to and rely on your Fidelity
                                                            Other financial instruments as specified by the IRS, including
Relationship Manager and Client Service Team.               the following:
                                                            • Debt issues such as bonds, notes, debentures, or any other
                                                              evidence of indebtedness
                                                            • Options, rights, warrants, and derivatives
                                                            • Commodities and any type of contract tied to commodities, if
                                                              the IRS determines that adjusted basis reporting is appropriate

    ADDITIONAL PROVISIONS RELEVANT TO YOU                                         tax advisors are still required to monitor wash
    AND YOUR CLIENTS1                                                             sales across all accounts and comply with the
    Methods and timeline                                                          requirements to compute wash sales under IRS
    • Except for securities eligible for and using average
                                                                                  Code Sec. 1091.
      cost, Fidelity is required to set a default relief                      •   Options are not currently reported on the 1099
      method of first in, first out (FIFO) to determine                             and will need to be reported in the same year
      cost basis. Clients will need to provide adequate                           they are closed. Reporting includes closing
      notification to their advisors and Fidelity if they                          transactions on options or the exercise of a cash-
      wish to use a method other than the default.                                settled option. Further, the cost or proceeds on
    •   Effective in January 2009, you and your clients now                       covered securities purchased or sold as a result of
        receive IRS Form 1099-B by February 15, instead of                        an option exercise must be adjusted by the amount
        the customary January 31 deadline.                                        of the option premium. Fidelity’s tax lot accounting
                                                                                  system currently makes these adjustments for
    •   For transfer of customer assets, all brokers                              supplemental reporting purposes; the new
        (including mutual funds), banks, and transfer agents                      legislation will require that this information also be
        must provide cost basis for covered securities.                           reported to the IRS.
        This includes partial transfers, free deliveries, and
        physical transfers. The transferring broker must                      •   Currently, short sales are reported in the year the
        provide the receiving broker with accurate cost basis                     sale is made. Starting on January 1, 2011, short
        within 15 days of transfer. Specifications have not                        sales will be reported on the 1099-B in the year the
        yet been established as to how broker-dealers should                      position is closed.
        provide the cost basis on transfer of assets and what                 Other
        the requirements should be for the receiving broker                   • The new regulations require S-corporations,
        if cost basis information is missing.                                   which currently do not receive tax forms from
    •   Issuers must report to the broker and holder of                         Fidelity, to begin to receive consolidated year-end
        securities the cost basis ramifications and taxability                   1099-B forms.
        requirements for specified securities impacted by
        corporate actions within 45 days of the event or
        by January 15, whichever is earlier. Fidelity will
        continue to make adjustments on a best-efforts basis.
    Common transactions
    • Investors must continue to keep track of wash sales
      if they occur across multiple accounts. Although
      the IRS has provided simplified assumptions for
      brokers to report wash sales, investors and their

The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or

 tax advice. Fidelity Investments does not provide legal or tax advice. Fidelity Investments cannot guarantee that such information is accurate,
 complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability,
 accuracy, or completeness of this information.

What the regulations require                                                   NEW REPORTING REQUIRED
from Fidelity Investments                                                      BY THESE REGULATIONS

                                                                               Beginning in 2012, Fidelity is required to send the
                                                                               IRS the adjusted cost basis and realized gains and
Fidelity, as the custodian for your clients’ assets, sends                     losses for covered securities that are identified on
each investor the IRS Form 1099-B, which reports                               the schedule described on page 2 of this educational
gross proceeds from all transactions for the prior                             guide. This reporting must include all transactions
calendar year. Included with the IRS form mailed to                            in covered securities that occur on or after January 1,
your clients are supplemental pages, which provide                             2011. As part of this reporting, Fidelity will continue
realized gain/loss information for all transactions as                         to send gross proceeds information to the IRS for all
recorded on Fidelity’s tax lot accounting system.                              client transactions.
The system currently tracks the gain/loss information
as follows:                                                                    Securities will be reported to the IRS using either
                                                                               1) FIFO or 2) an IRS-approved alternative relief
       CURRENT RELIEF METHOD ON RECORD                                         method chosen by the advisor and initiated by
                                                                               their client. Fidelity plans to support alternative
                                                                               relief methods by 2011, providing advisors with
       Securities               FIFO, unless the advisor
                                preselects specific tax lots                    the flexibility to set an alternative relief method on
                                for each security at the time                  a global basis.2 Mutual funds will continue to be
                                of the sale
                                                                               reported on average cost basis, unless the advisor
                                                                               elects to use a specific lot method.
       Mutual                   Average cost single category
       Funds                    basis, although advisors
                                currently have the ability
                                to select lots by specific
                                identification cost

Fidelity reports gross proceeds for all client
transactions to the IRS. Cost basis information
provided to your clients in the supplemental pages
is not included with Fidelity’s reporting to the IRS.

    These methods will be contingent on IRS regulations. Fidelity Investments account features and specific launch dates are subject to change.

How the regulations may impact                            POTENTIAL IMPLICATIONS FOR TRACKING
                                                          COST BASIS WITH YOUR PORTFOLIO
your firm and your clients
                                                          MANAGEMENT SYSTEM
The potential impact of the regulations on your
                                                          Under the new regulations, advisory firms utilizing
practice and on your clients may vary, depending
                                                          a portfolio management system to report cost basis
upon the platform your firm utilizes to track and
                                                          may be faced with the following tracking and data-
report cost basis information that is ultimately
                                                          management issues:
delivered to the IRS.
                                                          •   Cost basis for securities covered by the regulations
THE REGULATIONS SHOULD NOT AFFECT CLIENTS                     and reported to the IRS will reside on the custodian
                                                              platform, but you may also elect to record it on
                                                              your portfolio management system.
Investors who utilize the Fidelity-prepared IRS Form
                                                          •   Cost basis for securities not covered by the new
1099-B and the supplemental pages for reference in
                                                              reporting requirements will reside on the advisor’s
their tax preparation should not experience any change
                                                              portfolio management system and may also reside
in procedures. When preparing their taxes, they will
                                                              on the custodian platform.
continue to complete Schedule D as they currently do.
Typically, these investors are working with an advisor    This fragmented manner for storing cost basis
who does not provide them with an advisor-prepared        information potentially poses three challenges for
consolidated gain/loss report generated from the          managing your practice:
advisor’s portfolio management system.                    •   Gain/loss reporting. When you generate gain/loss
If these investors represent your clients, they can           reports for clients from your portfolio management
continue to rely on Fidelity to provide them with the         system, you must be sure to reflect accurate cost
information they need to assist them in determining           basis for both covered and uncovered securities and
gains and losses for tax preparation. Beginning in tax        may want to alert clients as to which securities are
year 2011, Form 1099-B will include adjusted cost             covered by new regulations.
basis for covered securities only. The supplemental       •   Tax-sensitive investing. You must ensure that
statements included with the 1099 will continue               the lot selection process you use for making tax-
to include cost basis for all transactions, regardless        sensitive investing decisions is properly reflected
of whether the securities are considered covered              in your portfolio management system and Fidelity’s
securities under the law.                                     tax lot accounting system.

If your firm relies on Fidelity to provide cost basis      •   Managing third-party data. You must accurately
information tracking as described above, you should           manage cost basis data received from other third
not experience any changes to your operations or              parties, including multiple custodians and separate
workflow.                                                      account managers.

As always, supplemental information is provided as a      To help you fully assess how these changes could
reference source for clients; it is not intended to and   impact your firm and your clients, we provide the
should not be construed as tax preparation or advice.     following two scenarios drawn from actual IWS
                                                          client situations. These examples also highlight
                                                          the potential issues and challenges that may occur
                                                          if advisors do not proactively consider how these
                                                          regulations could impact your firm and your clients.


Halbert Hargrove, a large wealth management firm based in Long Beach, California, works with affluent investors,
charitable foundations and corporations. Although some of the firm’s clients are as large as $15 million, individual

investor accounts average about $3 million. Recognizing the importance these clients place on holistic tax
planning, Halbert Hargrove provides a high degree of client reporting so they can make effective decisions in
consultation with their tax advisors.

The firm relies on its portfolio management system as the primary source of cost basis data to provide this
reporting. Fidelity is its primary custodian. For a select number of accounts, the firm also works with outside
providers for separate account management.

Current Client Reporting Experience Provided by Halbert Hargrove
•    All clients receive the following two gain/loss reports for each year:
       – Sent in November, an estimate of investment gains and losses for the current calendar year
       – Sent during the first calendar quarter, an annualized gain/loss report for clients to use when preparing
         Schedule D
•    Given the high degree of reporting from internal systems, Halbert Hargrove currently requests that Fidelity
     suppress the supplemental gain/loss information currently available in the Fidelity-prepared Form 1099-B.

Potential Impact of Cost Basis Regulations on Halbert Hargrove and Its Clients
•    Halbert Hargrove may want to consider changing its process for preparing gain/loss reports to incorporate
     and reconcile cost basis for securities that Fidelity is reporting to the IRS. Otherwise, the investor and tax
     preparer will need to rely upon the following two sources of information for tax preparation:
     – The IRS Form 1099-B for covered securities
     – An advisor-prepared gain/loss report to prepare client taxes
•    Halbert Hargrove also needs to ensure that the cost basis data shared with and collected from any of the
     separate account managers the firm works with continues to reflect the cost basis data that will be reported to
     the IRS by Fidelity and by the client.

Challenges the Advisor May Need to Address
•    The advisor may want to determine how to easily prepare a consolidated gain/loss report that includes
     covered and uncovered securities, so that the client receives one consolidated gain/loss report with all data.
     Under current workflows, this may be challenging, since Halbert Hargrove manages the system of record that
     tracks the cost basis information its clients use in their annual tax reporting to the IRS. If this issue is not dealt
     with, the advisor’s clients could face extra burdens and expense when preparing and filing income taxes.
•    The advisor may want to coordinate with any separate account managers it uses to ensure that they agree on
     a process for sharing cost basis data with each other.

    Halbert Hargrove is a client of Fidelity Institutional Wealth Services (IWS). Its business needs and results may not reflect the experience of
    other IWS clients.


Advisors who proactively and aggressively employ various strategies for tax-sensitive investing will want to ensure
proper tracking of their decisions. Consider the situation of Summit Financial Strategies, Inc. (Summit), another large
wealth management firm based in Columbus, Ohio.4

Tax planning is considered a critical component of the firm’s value proposition for its clients, who are predominantly
individuals and families with assets greater than $1 million. The firm relies on its portfolio management system
as the primary source of cost basis records. All clients are provided with annual gain/loss reports generated
from this system. Summit works with multiple custodians. In some instances, its clients also work with multiple
financial institutions.

Tax-sensitive methods and strategies employed by Summit
•    Asset allocation, tax-loss harvesting, and gifting to family and charity are all critical components of the firm’s
     tax-planning method. Client holdings encompass mutual funds, ETFs, separately managed accounts and, on
     occasion, individual securities.
•    The firm uses a third-party portfolio optimization tool to make recommendations for specific tax lots to
     be sold.

Potential impact of cost basis regulations on Summit
•    Although specific lot recommendations identified by the third-party portfolio optimization tool are recorded
     in Summit’s portfolio management system, the trade ticket that it generated does not include specific tax lot
     information when the trade is sent to Fidelity. This may create a discrepancy between the cost basis data
     reported from the Fidelity systems to the IRS and the intent of the trade.
•    Employing a default-relief method at the custodian, such as highest in, first out (HIFO), will not rectify all
     Summit’s reporting challenges, since it may use specific identification to achieve a client’s unique tax

Challenges the advisor may need to address
•    Initially, the advisor may want to determine how to deliver cost basis information to clients. Summit currently
     stores cost basis information on its portfolio management system, but going forward Fidelity will be required
     to track cost basis for covered securities; thus, the advisor may want to review its operational procedures so
     that both systems match and everyone starts with the proper records.
•    On an ongoing basis, Summit may need to decide how to send cost basis information to the custodian
     efficiently so reporting is correct.
•    Summit may need to coordinate with any separate account managers it uses to ensure that all processes are
     mutually compatible. All parties must consider the new regulations when sharing cost basis data with each
     other and with custodians.

    Summit Financial Strategies, Inc., is a client of Fidelity Institutional Wealth Services (IWS). Its business needs and results may not reflect the
    experience of other IWS clients.


As we discussed earlier in this guide, all financial institutions are impacted by the legislation — either by
changes in the reporting requirements, or simply by how they work with their clients to share data that is
ultimately delivered to the IRS. In addition to your relationship with Fidelity, you may want to consider your
other relationships:

•   Other custodians you may work with
•   Separate account managers you may hire to oversee specific client investment accounts
For each of these types of relationships, we suggest that you ask the questions in the chart below to help ensure that you
are addressing any potential reporting issues you may encounter.


     Other custodians               • What is your firm doing to ensure that it will be in compliance with the new cost
                                      basis regulations that will become effective in 2011?
                                    • How are you planning to report cost basis to the IRS?
                                    • What relief method options are you making available, other than FIFO?
                                    • How are you planning to work with me, as your client, to ensure that data on your
                                      system reflects our understanding of the cost basis for all holdings we manage?

     Separate account managers      • How is your firm impacted by the cost basis reporting requirements?
                                    • How will this alter the manner in which you share data with my firm?
                                    • What processes can we put into place so that we both benefit from an efficient
                                      transfer of information on an ongoing basis and continue to efficiently communicate
                                      important tax issues regarding individual client situations?

Options to consider for future cost basis tracking
The case studies on the previous pages provide an overview of the challenges your firm may face in adapting to the
new cost basis regulations imposed on brokers, such as Fidelity. In light of the potential changes to your workflow,
we recommend that you and your team begin to consider the options available for future cost basis tracking.

In our next cost basis educational guide we plan to provide a framework to help you determine which tracking
option is best for your firm, along with a roadmap you can utilize to help you implement your decision.

   TRACKING OPTIONS        REQUIREMENTS                                    POTENTIAL BENEFITS

   All data stored        Your firm may want to periodically reconcile      You can continue to use your portfolio
   on your portfolio      cost basis data stored in your portfolio         management system for tax planning purposes.
   management system      management system with data recorded
                                                                           Your clients continue to rely on your firm for
                          on Fidelity’s tax lot accounting system.         gain/loss reporting for tax preparation.

   All data at your       Advisors will need to perform a one-time         For firms that work with only one custodian,
   custodian              upload or synchronize data with the custodian    this option can help make administration
                          tax lot accounting system. For this process,     easier after the cost basis data is reconciled
                          advisors will need to ensure that their cost     with the custodian’s data.
                          basis data is valid, and that they can replace   Your clients can use Fidelity’s 1099-B
                          data currently on the custodian platform for
                                                                           supplemental information for assistance in
                          securities not covered by the new regulations.   preparing their own tax preparation.
                          Matching lot relief methods across accounts
                          and security types will keep cost basis data
                          in sync.


Investors who work with more than one advisor and/or have assets at more than one financial institution may
face a bigger challenge preparing taxes. These investors and their tax preparers could experience a substantial
reporting burden if these firms do not prepare a consolidated gain/loss report that reports on both covered and
non-covered securities. In the absence of such a report, they would need to rely on the IRS Form 1099-B from
each custodian and an advisor-prepared gain/loss report for uncovered securities. This additional burden could
lead to client dissatisfaction at the time of return preparation.

Utilize the change in regulations as an opportunity to identify any clients who are in these situations. Then
promote your services by emphasizing how easy it is to work with your firm.

It’s important to note that any of your clients who have Fidelity Retail Brokerage accounts, in addition to other
relationships with your firm, will receive an IRS Form 1099-B that reports gains and losses for covered securities.
These investors will also continue to receive supplemental information that is currently provided for all security
transactions for the tax year.

Getting ready with Fidelity Investments

To help your firm effectively adapt your processes to your chosen method of tracking cost basis for all securities,
while avoiding workflow disruptions, Fidelity is committed to providing you with the following types of
comprehensive, dedicated support:

•    Ongoing communications. In the months ahead, we plan to provide periodic legislative updates, as well as
     a second cost basis educational guide that will include a roadmap for helping you to adapt to the changes.
     This second guide will be available to all clients in the spring of 2010.5
•    Continued technology enhancements to the Fidelity platform. We are working on several enhancements
     and processes that are designed to provide advantages for your firm:
     –   Smooth transition to the cost basis tracking option of your choice
     –   Capability to support alternative tax-lot-relief methods
     –   Coordination of tax-lot information between your firm, the account managers you work with, and Fidelity
         to help ensure that actions they take on your advisor-directed accounts are accurately captured on the
         Fidelity systems



         Relationship manager                        Education and guidance regarding the legislative changes and choices you
                                                     have for future cost basis tracking

         Client service team                         Support for operational issues and technical questions related to
                                                     Fidelity’s tax lot accounting system

         Advisor CHANNEL®                            Up-to-date communications regarding cost basis legislation and
         WealthCentral   ®                           instructions for operational procedures, as well as technology
                                                     enhancements to help you track cost basis

         Implementation team                         For new clients, support to transition your current practice to the
                                                     Fidelity platform

    Target date is subject to change.

The new regulations enacted by Congress may
present both challenges and opportunities for your
firm. Fidelity is committed to keeping you informed,
so you can proactively plan for and adjust to these
changes. Our goal is to help you provide the highest
level of service to your clients while fulfilling all
legal requirements.

Although the new regulations do not become
effective until January 1, 2011, it is important for
your firm to begin preparing now. Delay in planning
for and implementing the changes required by the
legislation could cause costly disruptions in service
and client dissatisfaction.

In the next several months, the IRS will be clarifying
important aspects of this legislation. Fidelity will
keep you informed as new information becomes
available and as our plan for complying with the
requirements is further developed.

Be assured that Fidelity is devoting its full attention
to these new regulations. Our goal is to provide
you with the latest information and support as
the regulations evolve, so you can implement the
necessary changes effectively.

You can be confident that helping you properly
implement these new regulations is a priority for
Fidelity. We will stay with you every step of the
way to help ensure your successful transition
and compliance.

For more information, please contact your Fidelity Sales or Relationship Manager.

        20 0 SE APORT BOULE VARD Z 2B1
        BOS TON, MA 02210

For Investment Professional Use Only. Not for distribution to the public as sales material in any form.
The third-party service providers listed are independent companies and are not affiliated with Fidelity Investments. Listing them does not
suggest a recommendation or endorsement by Fidelity Investments.
The information contained in this guide is general in nature and is provided for informational purposes only. Fidelity Investments is providing
this guide as service to your firm. You are responsible for evaluating your own practice and making appropriate decisions for your firm. Those
decisions may be based on these and other factors you deem relevant. This guide is not meant to be exhaustive of all possible options you
may consider. Fidelity Investments is not responsible for your action or inaction as a result of this service.
The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or
tax advice. Fidelity Investments does not provide legal or tax advice. Fidelity Investments cannot guarantee that such information is accurate,
complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability,
accuracy, or completeness of this information.
Halbert Hargrove and Summit Financial Strategies, Inc. are independent firms and not affiliated with Fidelity Investments.
Fidelity Institutional Wealth Services, 200 Seaport Boulevard Z2B1, Boston, MA 02210
Clearing, custody or other brokerage services may be provided by National Financial Services LLC, or Fidelity Brokerage Services LLC,
Members NYSE, SIPC.
536232.1.0                                                                                                                           1.904981.100

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