How is option trading handled tax-wise?

From: juanb@vnet.ibm.com
Subject: How is option trading handled tax-wise?
Date: Wed, 15 Mar 00 07:44:52 EST

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First, I'd like to thank Rich and Jeff for their answers to my previous
question about an IRA deduction even if you had a plan at work.

My question now is how are trading options handled come tax time? I
tried looking for information at the IRS site, but a search came up
empty and looking over the list of publications didn't seem to help.

I've been told that brokers don't include this info on a 1099B form
and it's up to you to report it.  Is this true, and if so, how does
the IRS catch those who are dishonest and don't report anything?
Since you usually never own the underlying stock when trading options,
is there some special procedure that needs to be followed?  Or can
you just use the same method used in the past - your basis is what
you paid for the option, and subtract that from the proceeds upon
sale to determine your gain or loss?

Any help or pointer to a site with more info would be great.

Thanks,
Juan

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