Quick followup, IRS publication 550 says it all and fairly clearly: https://www.irs.gov/publications/p550 Under the 'Nondividend Distributions' section: Basis adjustment.   A nondividend distribution reduces the basis of your stock. It is not taxed until your basis in the stock is fully recovered. This nontaxable portion also is called a return of capital; it is a return of your investment in the stock of the company. If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. See   Holding Period   in chapter 4. ... View more

I believe that you report the cost basis as zero, not negative.  As somebody else responded, once your ROC distributions exceeded your cost, you should have been reporting those distributions as capital gains all along.  I'm not sure if they are considered short or long-term capital gains though, so definitely check into that.  It's the same net result conceptually, if you reported a cost basis of negative $10, that's just like saying you made an extra $10 in capital gains when you sold the stock. ... View more