The only difference between "covered" and "non-covered" is whether the financial institution has to report your cost basis.
If the security is a "non-covered security", the financial institution is not required to report cost basis to the IRS and the transaction will be coded as "non-covered", Box/Code "B" or "E".
(Box/Code "E" - Long term sales with cost basis NOT reported to the IRS).
Even though the the financial institution is not required to report cost basis to the IRS, they can still choose to do so if they have the information. The transaction will be still be coded as "non-covered", because the security itself is "non-covered'.
If the financial institution is not required by law to report the cost basis of a security you sold, then it is "non-covered". It is still a taxable transaction, so you would have to provide the cost basis from your records.
In tax year 2011, new legislation was passed requiring brokers to report adjusted basis and whether any gain or loss on a sale is classified as short-term or long-term from the sale of "covered securities" on Form 1099-B. Prior to this time frame, it was hit or miss to get this level of detail from investment firms. Covered just distinguishes the investments that must include this detail from those that do not, noncovered. An investment is considered covered if it is:
Shares of corporate stock acquired on or after January 1, 2011.
Shares of stock in mutual funds and stock acquired in connection with a dividend reinvestment plan are generally not covered unless acquired after January 1, 2012.
Certain other types of securities (e.g., debt instruments and options) will be covered if acquired after January 1, 2014.
"Non-covered" securities are any securities purchased or acquired before the above effective dates. Transactions involving assets purchased and held prior to these effective dates can still be reported as they have been in the past, meaning that brokers may not provide detailed cost basis reporting to the IRS on the sales of "non-covered" securities. They may decide to report only your gross proceeds. For these situations, it is your responsibility to report the proper cost basis on non-covered securities to the IRS. If you do not have this information, you can still seek help from your broker, but it may be a little more difficult than getting information for covered securities.
