Absolutely, you have understood the IRS rule correctly! (of course the taxpayer needs to add up all of his 1099-B amounts, along with all other 1099 income and all other includible non-1099 income, such as gross sales proceeds from stock options)
which rule? i'm preparing and file my taxes by myself for many years,but i'm not calculating my taxes on proceeds alone(i would own X10 than my actual income is). to me income from trading mean gross proceeds(2)- basis(3)=PnL(income)
The rule being discussed here. That is the rule for the requirement to file an income tax return with the IRS. There has been no discussion regarding taxable income.
If your friend gets a 1099, that information will be furnished to the IRS from the broker and that's going to set off alarms at the IRS if they do not receive any return at all. Believe it or not it's best to file a return whether you owe or not because if you don't you will hear from them and they may request it any way.