what is a covered security 
in 2008 congress passed legislation which required brokers to report the adjusted cost basis for securities and mutual funds to both the investors and the internal revenue service irs effective tax year 2011 1 since 2011 the cost basis of certain securities has been reported through form 1099 b which indicates whether the capital loss or gain from the sale of the security is short or long term any transaction that occurs on or after this effective year is a covered security and is reported on form 1099 b a covered security is defined as understanding non covered securitynon covered securities refer to any investments purchased before the effective dates listed above 3 the detailed cost basis following the sale of a non covered security is not required to be reported to the irs by a broker however the gross proceeds or redemption value from a sale may still be reported to the irs while a broker will still report the cost basis to the investor or taxpayer it is up to the investor to report this information to the irs through schedule d on form 1040 for any shares sold whether covered or non covered 4 even if the taxpayer does not receive a cost basis report they must still report their adjusted cost basis to the irs the irs considers securities noncovered if they are acquired through a corporate action and if their cost basis is derived from other noncovered securities 3types of noncovered securitiescorporate actions such as stock splits stock dividends and redemptions usually result in additional shares for the investor the additional shares will be classified as noncovered if they were received through noncovered shares 3for example an individual who bought 100 shares in a company in 2010 that split three for one in 2013 will receive an additional 200 shares even though the 200 shares were acquired after 2011 they are considered non covered because they were split from shares acquired before 2011 a dividend reinvestment plan drip allows an investor to reinvest his dividends for additional shares in the same company an investment security that was purchased in 2011 but transferred in the same year to a drip that uses the average cost method of calculating the cost basis for an asset is a non covered security but if the transfer occurred after 2011 it will remain a covered security 5investment sales are divided into covered and non covered securities using form 8949 transactions on non covered securities not reported on form 1099 b are reported on form 8949 where code c box c checked is used for short term holdings and code f box f checked for long term holdings 6