As part of the Emergency Economic Stabilization Act (the "Act") passed by Congress in 2008, all mutual fund companies will be required to report to shareholders and the Internal Revenue Service (IRS) cost basis and holding period information. 

Beginning with the 2012 tax year, Form 1099-B will provide shareholders and the IRS with cost basis information and the character (i.e. short-term vs. long-term) of any gains/losses generated.  The reporting requirements apply only to what is defined as “covered shares.”  Covered shares are shares acquired on or after January 1, 2012.  Mutual fund shares acquired before that date are not covered by the new legislation and are deemed “non-covered shares.”  PNC Funds will continue to provide its shareholders with the adjusted cost basis of any non-covered shares redeemed or exchanged.  This information is provided as a courtesy to our shareholders and will not be reported to the IRS.

What is changing for shareholders?

Prior to the Act going into effect, mutual fund companies have historically been required to report gross proceeds to the IRS when a shareholder sells fund shares, and shareholders have been responsible for maintaining the cost basis of those shares, calculating the gain or loss on the sale and reporting it to the IRS.  Beginning in 2012, PNC Funds will maintain separate cost basis calculations for taxable shareholder accounts: one for non-covered shares (shares acquired prior to January 1, 2012) and another for covered shares (shares acquired on or after January 1, 2012). 

The cost basis of covered shares will be determined using our default method of Average Cost or an alternate method chosen by each shareholder (if applicable), and we will provide this information to shareholders and the IRS.  The difference is that in the past we have only reported cost basis information to shareholders, not to the IRS.  We will continue to report cost basis information on non-covered shares to shareholders as a courtesy. 

Does this apply to all shareholder account types?

No.  The reporting requirements only apply to taxable accounts and are applicable to any shares of mutual funds acquired on or after January 1, 2012 and then subsequently sold or exchanged.  Cost basis will not be required for tax-deferred accounts, including 529 and retirement accounts (IRAs), as well as money market fund accounts.

What is cost basis?

Cost basis is the price paid to acquire mutual fund shares, adjusted for stock splits, reinvested dividends, capital gains distributions, etc.  The cost basis is used to calculate the capital gain or loss, or the difference between the proceeds received less the cost basis, on the sale of the shares.  If shares are sold for more than the original cost, the difference is a capital gain, whereas if shares are sold below the original cost, the difference is a capital loss.

Shareholders pay taxes on capital gains.  Capital losses may be used to offset other taxable investment gains. Therefore having an accurate record of the cost basis is important in calculating a shareholder's tax liability.

What cost basis methods does PNC Funds support? 

PNC Funds does not provide tax advice and recommends that shareholders consult a tax professional.

After a cost basis method is selected, can a shareholder change his/her election?

A shareholder may change his/her elected methodology at any time by completing a Cost Basis Election Form or by providing a written letter of instruction to:  PNC Funds, c/o BNY Mellon Investment Servicing, P.O. Box 9795 Providence, RI 02940-9795. 

Please note that if the cost basis method is changed after a sale or exchange of covered shares, the new cost basis method will be applied only to shares acquired after the date the change request is processed.  Also, updating a cost basis election either to or from Average Cost must be done in writing, and a shareholder will only be permitted to revoke this method retroactively until the first covered shares subject to Average Cost are redeemed.  Under the IRS regulations, any revocation of Average Cost after that time may only be applied prospectively for covered shares acquired in the future.

For all other cost basis methods, a shareholder may change his/her cost basis method on existing covered shares at any time.

It is important to consider the tax implications and select a method prior to redeeming shares of any mutual fund.  Again, PNC Funds recommends consulting a tax professional.

Can a shareholder choose different cost basis accounting methods in the same or multiple accounts?

A different cost basis method can be chosen for different funds, regardless of whether they are held in a single or multiple accounts.  Any fund within an account(s) for which a shareholder does not make an election will default to the Average Cost method. 

Does this change how shareholders should file tax returns? 

No, the new requirements do not change a shareholder’s obligation to accurately report capital gains and losses in their annual tax filings. The cost basis information PNC Funds provides should make that task easier for shareholders and their tax and financial professionals.

When was this change communicated to shareholders?  

A letter was mailed to PNC Funds shareholders with taxable accounts in November, 2011. The letter detailed the new IRS requirements, explained the different cost basis methods supported by PNC Funds, and included a Cost Basis Election Form to be completed and returned to us by December 31, 2011.

PNC Funds strongly encourages shareholders to consult a tax professional with any questions regarding the new reporting requirements, the cost basis accounting method options or the impacts that they have on a particular account.  Information can also be obtained by visiting the IRS website at irs.gov. 

If you have any additional questions, please contact PNC Funds' Shareholder Services at (800) 622-FUND (3863) Monday through Friday between 8 a.m. and 6 p.m. Eastern Time.