FAQs on Commodity and Currency ProShares Taxation


 

I understand that Commodity and Currency ProShares ETFs are treated as partnerships for tax purposes. Can you give specifics on how I can expect my investment to be taxed?
Partnerships are "pass-through" entities: the income and expenses of each Commodity and Currency ProShares ETF "flow through" to its shareholders. (This is unlike a corporation, which pays taxes before distributing profits to shareholders, which in turn are separately taxed.) Accordingly, each owner of a Commodity or Currency ProShares ETF takes into account his or her pro rata share of the ETF’s income, gain, loss, deductions and other items for the calendar year.

While investors may incur trading profits or losses through buying and selling Commodity or Currency ProShares, they are also subject to tax on their share of any income or gains passed through by the Trust. The tax treatment of such income or gains depends on the Fund’s underlying positions.

 

  • For example, Commodity and Currency ProShares will earn income from overnight investments and swap agreements. An investor’s pro rata share of that earned income will be taxed at his or her ordinary income tax rate.
  • Commodity and Currency ProShares may also invest in a range of derivative instruments, including futures and forward contracts. Generally, open futures and forward positions will be marked to market at the end of the year. Most gains and losses on futures and forward contracts can be treated as 60% long-term and 40% short-term, although this will vary depending on the specifics of the contract.
  • Commodity and Currency ProShares may also enter into swap agreements that generally produce capital gains/losses that are most likely short-term in nature.

Monthly financial statements for each Commodity and Currency ProShares ETF will be posted on our website under the Fund Overview. Be sure to consult your financial advisor or a tax professional for advice as to your particular tax situation.

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How do Commodity or Currency ProShares ETFs pass through capital gains or income to the investor?
Unlike mutual funds and most ETFs, Commodity and Currency ProShares are not expected to make distributions with respect to capital gains or income. From a tax perspective, any distributions from Commodity and Currency ProShares that might occur will be characterized as nontaxable return of capital (lowering the investor’s cost basis).

Investors are responsible for their portion of taxes on capital gains and income, whether they receive a distribution or not. Because Commodity and Currency ProShares are treated as partnerships for tax purposes, the investor’s allocated portion of a Fund’s income, gains, losses and deductions are reported on a Schedule K-1. Each investor’s allotment of Commodity or Currency ProShares taxable income, as reported on the Schedule K-1, increases his or her cost basis. Investors will not receive a Form 1099-DIV issued by most mutual funds and other ETFs, which itemizes the taxable distributions received by the investor.

Monthly financial statements for each Commodity and Currency ProShares ETF will be posted on our website under the Fund Overview.

 

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How does ProShares calculate my pro rata share of a particular Commodity or Currency ProShares ETF?
Generally, if you own shares at the close of the last trading day of a month, you are considered a shareholder throughout the following month (until just before the close of the last trading day). This means even if you sell your shares before the end of the second month, you will be treated as continuing to hold the shares through that second month. Therefore it is possible that you may be allocated income, gain, loss and deductions that were realized after you sold your shares.

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If I purchased shares in a Commodity or Currency ProShares ETF, what is my tax reporting responsibility for this investment?
Generally, all income, capital gain/loss and expense reported on the Schedule K-1 we send you should be included on your tax return. Be sure to consult with a tax professional and/or your financial advisor. When and for how long you held a Commodity or Currency ProShares ETF determines what portion of income and gains/losses are allocated to you through the K-1.

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If I sell shares in a Commodity or Currency ProShares ETF, what is my tax reporting responsibility for this transaction?
Generally, your gain/loss on the sale of shares must be included in your tax return. The Sales Schedule portion of the Schedule K-1 we send you will reflect any sales of your investment and will include related adjustments to your tax basis. The Sales Schedule also includes a worksheet to help you calculate your total gain/loss. Be sure to consult with a tax professional and/or your financial advisor.

Note: A Fund's income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own shares on the last trading day of the month, you will be considered a shareholder throughout the next month, even if you sell your shares before the end of the second month.

 

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When can I expect to receive my Schedule K-1?
ProShares strives to provide Schedule K-1s to investors as early as possible. Information must be obtained regarding ownership interests bought and sold during the year from the organizations that sell our products. Much of this information is not provided until late January. The information must be reviewed for accuracy, processed, printed and mailed; generally we expect the K-1s to be mailed in mid-March. We understand the impact this has on our investors that need to file their taxes, and have taken many steps to ensure prompt delivery of the Schedule K-1s. Should there be any delays in our expected delivery of the Schedule K-1s, notice will be posted on our website, www.proshares.com.

I didn’t receive any cash disbursements from my investment in the Fund. Why are there reportable items on my K-1 that are subject to tax?
As an investor in Commodity or Currency ProShares, each investor must account for his or her pro rata share of income from the Investing Pool (or partnership) on an annual basis—whether that income or capital gain is distributed or not. For your reference, monthly statements for each Commodity and Currency ProShares ETF will be posted on our website under the Fund Overview. When and how long you own shares determines the pro rata share of income and gains that will be detailed on your K-1.

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How do I handle losses passed through by the Commodity and Currency ProShares ETFs?
If your taxable income for the year is negative, then it is considered a passive loss under the tax code. Note that this loss may not be used to offset income from other sources. Instead, the passive loss may only be used to offset future income from the same Fund.

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I have questions about the Schedule K-1. Where can I get help?
Shareholders with questions about their Schedule K-1 can visit the Commodity and Currency ProShares tax package support website. On the site you can sign up to be notified when your tax package is available.
 

  • Sign up for an email alert to notify you when your tax package is available.
  • View your 2009 tax schedules
  • Print your tax package including instructions
  • Download a file of your Schedule K-1 information that can be imported into Turbo Tax® software
  • Request changes to incorrect information

In addition, you will find contact information for our Tax Package Support Team. Please note that our Tax Package Support staff is not qualified to give tax advice or answer questions regarding your particular tax situation. Please refer these questions to your tax advisor.

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What if the information reported in my tax package is incorrect?
The tax calculations found within the tax package you received are based on purchase and sale information obtained from brokers and various reporting sources. If the information provided by these sources is incorrect, the information reported to you, as well as the information reported to the Internal Revenue Service, may also be incorrect. If your ownership records do not agree with the transactions reported on the Ownership Schedule contained in the tax package, please visit the Commodity and Currency ProShares tax package support website for information on how get a corrected K-1.

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Is any of the allocated income Unrelated Business Taxable Income (UBTI)?
There is potential for Unrelated Business Taxable Income. If there is UBTI, it will be shown on the Schedule K-1.

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Commodity and Currency ProShares investors should refer to the applicable ProShares prospectus for important tax information. Where can I obtain a prospectus?
The prospectus for Commodity and Currency ProShares (ProShares Trust II) may be obtained by clicking here, or by contacting ProShares at 866-PRO-5125 (866-776-5125), or writing to us at 7501 Wisconsin Avenue, Suite 1000, Bethesda MD 20814.

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This material is not intended to be tax advice. For all tax matters related to investing in Commodity and Currency ProShares ETFs, be sure to consult with a tax professional or your financial advisor. Tax consequences may vary by individual taxpayer.

Commodity and Currency ProShares are a series of exchange traded funds that operate as commodity pools as defined in the Commodity Exchange Act. Because they do not invest in securities, Commodity and Currency ProShares are not regulated as investment companies under the Investment Company Act of 1940, although their public offering is subject to SEC review.

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