Beginning in January 2012, mutual fund companies were required to report the adjusted cost basis on certain sales of shares acquired on or after January 1, 2012, to both investors and the Internal Revenue Service (IRS). MainStay  sends its shareholders a Cost Basis Election Form that allows you to choose your preferred cost basis method for "covered" shares (shares purchased after January 1, 2012).

The following Q&A will provide you with more information about cost basis regulations.

MainStay Funds Cost Basis Reporting FAQs

Cost basis is generally the price you paid for your shares, adjusted for return of capital, certain corporate actions, and any sales charges or transaction fees. Cost basis is an important calculation used to determine gains and losses on any shares you sell in a taxable (non-retirement) account. You will need this information to prepare your tax return.

Mutual fund companies and brokerage firms are responsible for reporting gross proceeds to the IRS when an investor sells securities. The investor is responsible for maintaining the cost basis of the security, calculating the gain or loss, and reporting it to the IRS. In 2008, as part of the Economic Stabilization Act (H.R. 1424), Congress amended the Internal Revenue Code to require brokers, including mutual fund companies, to report to customers and the IRS the customers' cost basis in securities (including mutual fund shares) sold or redeemed. For MainStay Fund shares acquired on or after January 1, 2012, we will track your cost basis and provide it to you and the IRS for tax reporting purposes on IRS Form 1099-B. Shareholders must use the information provided.

• Average Cost (ACST)—A method for valuing the cost of covered shares in an account by averaging the effect of all covered transactions in the account. The gain/loss is calculated by taking the cumulative dollar cost of the covered shares owned and dividing it by the number of covered shares in the account. Non-covered securities are calculated separately from covered securities and are not reported to the IRS.
• First In First Out (FIFO)—A standing order to sell the oldest shares in the account first.
• Last In First Out (LIFO)—A standing order to sell the newest shares in an account first.
• High Cost First Out (HIFO)—A standing order to sell the most expensive shares in the account first.
• Low Cost First Out (LOFO)—A standing order to sell the least expensive shares in the account first.
• Specific Lot Identification (SLID)—The shareholder needs to designate which specific shares to redeem when placing their redemption request. Please note that Average Cost cannot be used as a secondary accounting method. The secondary accounting method will only be activated if the lots chosen are no longer available.
• Loss/Gain Utilization (LGUT)—A method that evaluates losses and gains and then strategically selects lots based on that gain/loss in conjunction with a holding period.

MainStay has selected Average Cost as its default cost basis calculation method. This default will be applied to all reportable accounts that have not selected a cost basis method by January 1, 2012

MainStay offers the seven options listed above and can support the methods that are indicated.

Only taxable accounts that are IRS Form 1099-B reportable will receive cost basis reporting based on your chosen method.

It depends on your personal tax situation. You should consult with a tax advisor, CPA, Financial Planner, or Investment Manager to decide what option is best for you.

Covered mutual fund shares are those purchased after January 1, 2012. Uncovered mutual fund shares are those purchased prior to January 1, 2012. Cost basis will be reported to the IRS and shareholders for covered shares beginning with transactions that occur in 2012. MainStay will continue to offer cost basis information on uncovered shares as a service to shareholders using the Average Cost method.

For redemptions and exchanges after January 1, 2012, MainStay intends to utilize uncovered shares before covered shares for tax purposes. Covered shares will be reported as required under the regulations. This means the sale and basis calculation will be reported on IRS Form 1099-B to both the shareholder and the IRS. For uncovered shares, MainStay intends to report the sale on IRS Form 1099-B to the shareholder and the IR–and continue to provide the cost basis to the shareholder only using Average Cost.

You have always been required to report your cost basis. However, beginning in 2012, when covered shares are sold, cost basis information will be reported directly to the IRS. Failure to report this on your tax return will result in notification from the IRS for this infraction and possible interest and penalties.

All methods may be selected by phone, except for average cost. By IRS regulation, a shareholder may only select Average Cost in writing–which includes making the selection on mainstayinvestments.com. Even with MainStay electing Average Cost as their default method, the written election requirement has not been removed from the IRS regulations. To ease this process our forms, web site, and applications will be updated later this year.

Yes–depending on the timing of the change. If the change is made prior to the first redemption (i.e., redemption or exchange) of covered shares in the account, a change would revoke all previous calculations and replace them with the newly selected method. If the change is requested after that timeframe, the change would be made prospectively. A prospective change means that the shares purchased prior to the change will be calculated based on the old method, and all shares purchased after the requested change will be calculated based on the new method. Shareholders are always free to make a prospective change.

MainStay will apply your selected method to your covered shares. Uncovered shares will report your cost basis based on Average Cost, if the account is eligible, on the 1099-B as well.

Yes–A new method may be selected for each redemption or exchange that a shareholder makes. However, a shareholder cannot sell the same shares twice for tax purposes and each change would be prospective.

For tax purposes, MainStay intends to utilize uncovered shares first. If you wish to request that we utilize covered shares first, you will need to request these shares be redeemed by SLID (Specific Lot Identification).

Yes–if you authorize your financial professional to do so.

Applications will be updated and you will be required to enter your cost basis election for each new account. Additionally, you will need to select a cost basis method for redemptions and exchanges, if you have not already done so during the initial notification period in the fall of 2011.

No, sales charges and cost basis are tracked separately. Cost basis will come from tax lots that are only tied to the tax reporting of the account. For sales charges, our normal process will continue to be used–taking "free money" (shares free of sales charges)–first, followed by the oldest shares.

Yes–owners of S corporations will be subject to tax reporting, which includes 1099-DIV, 1099-B, and 1099-INT reporting for transactions beginning in 2012. Additionally, all corporate accounts will receive a solicitation in the third quarter of 2011 asking them to complete an IRS Form W-9 to certify if they are an S or a C corporation. S corporations should also select their cost basis calculation method when they return the paperwork. If the paperwork is not returned, the account will be treated as an S corporation for tax reporting purposes.

For more information about cost basis, the new regulations, or the Cost Basis Election Form, please speak with your financial professional or call MainStay at 800-MAINSTAY (624-6782).

The information contained herein is general in nature and is provided for informational purposes only. This material is provided as a resource for information only. Neither New York Life Insurance Company, New York Life Investment Management LLC, their affiliates, nor their representatives provide legal, tax, or accounting advice. You are urged to consult your own legal and tax advisors for advice before implementing any plan.

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