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Has anyone else had an issue with that? I'm in an investment club and we own GLD. We are having trouble tying out the proceeds amount, by exactly the amount of "expense proceeds" that are reported on the 1099-B. It's only $2, but what a pain.

I was finally able to locate a message I posted last year on the BetterInvesting Club Treasurers Discussion List regarding Widely Held Fixed Investment Trusts (WHFITs) such as GLD...

Having just read through the prospectus for GLD, I think I can explain all of the issues surrounding this particular ETF and all other similar securities.

These Widely Held Fixed Income Trusts (WHFITs) are grantor trusts under the tax law. This means that they do not pay taxes directly (just like partnerships, REITs, mutual funds, etc.) but pass all of their income and expenses through to their shareholders who report the items on their own tax returns. In the case of an investment club, these amounts, while reported on the 1065 are passed through to the club members.

When you buy shares of GLD, you are purchasing a physical quantity of gold. If the ETF manager sells some of the ETFs gold to pay its management fees, each shareholder of GLD sells its proportional share of its holdings of the underlying gold (but no portion of its shares of GLD). Each shareholder will recognize a gain or loss on the sale based on its cost basis for the gold sold. Your cost basis is the ratio of the number of ounces of gold sold to the number of ounces owned on the date of sale times your total cost basis in GLD shares. As gold is sold each month, your remaining cost basis in GLD shares decreases. If you sell shares of GLD, your gain/loss is the difference between your sales proceeds and the adjusted cost basis of the shares you sold.

The management fees paid by the ETF are a deductible expense for the club.

Since GLD does not make any cash distributions, the deemed sales and expenses probably do not appear in your club's accounting records. They need to be added.

Depending on the specific WHFIT, the problems may affect the reported amounts of interest, dividends, capital gains, and/or expenses. WHFITs include:
- Mortgage pools (such as securities issued by agencies commonly known as Ginnie Mae, Fannie Mae, and Freddie Mac)
- Unit investment trusts (trusts holding a specified group of stocks, bonds, options, or other assets)
- Royalty trusts (such as trusts holding interests in properties producing gas, oil, or minerals)
- Commodity trusts (such as certain trusts that hold precious metals)
- HOLDRS (such as certain trusts which hold a specified group of stocks)

As far as I can tell, none of the accounting software adequately handles these transactions at this time nor do the associated tax modules.

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