Publication 564 - Mutual Fund Distributions - Internal Revenue Service

Money market fund.

Form (and Instructions)

A money market fund

Distributions designated as exempt-interest

is a mutual fund that tries to increase current

dividends are not taxable. (See

Exempt-Interest

Schedule B (Form 1040A or 1040)

income available to shareholders by buying

Dividends, later.)

Interest and Ordinary Dividends

short-term market investments.

Ordinary Dividends

Schedule D (Form 1040) Capital Gains

Money market funds pay dividends and

and Losses

should not be confused with bank money market

accounts that pay interest.

An ordinary dividend is a distribution by a mutual

1099-B Proceeds From Broker and

fund out of its earnings and profits. Include ordi-

Barter Exchange Transactions

Qualified retirement plans and IRAs. The

nary dividends that you receive from a mutual

1099-DIV Dividends and Distributions

rules in this publication do not apply to mutual

fund as dividend income on your individual in-

fund shares held in individual retirement ar-

come tax return.

2439 Notice to Shareholder of

rangements (IRAs), section 401(k) plans, and

Undistributed Long-Term Capital

Ordinary dividends are the most common

other qualified retirement plans. The value of the

Gains

type of dividends. They will be reported in box 1a

mutual fund shares and earnings allocated to

of Form 1099-DIV or on a similar statement you

4952 Investment Interest Expense

you are included in your retirement plan assets

receive from the mutual fund.

Deduction

and stay tax free generally until the plan distrib-

See

How To Get Tax Help

near the end of

utes them to you. The tax rules that apply to

Qualified dividends. Many ordinary divi-

this publication for information about getting

retirement plan distributions are explained in the

dends you received are also classified as quali-

these publications and forms.

following publications.

fied dividends. The amount of your qualified

•

Publication 560, Retirement Plans for

dividends will be shown in box 1b of Form

Small Business (SEP, SIMPLE, and Quali-

1099-DIV or on a similar statement you get from

Tax Treatment

fied Plans).

the mutual fund.

•

Publication 571, Tax-Sheltered Annuity

Qualified dividends are taxed at the same

of Distributions

Plans (403(b) Plans).

maximum tax rates that apply to a net capital

•

gain. They are taxed at 15% if the regular tax

Publication 575, Pension and Annuity In-

A distribution you receive from a mutual fund

rate that would apply is 25% or higher. They are

come.

may be an ordinary dividend, a qualified divi-

taxed at 0% (zero%) if the regular tax rate that

•

dend, a capital gain distribution, an ex-

Publication 590, Individual Retirement Ar-

would apply is lower than 25%.

empt-interest dividend, or a nondividend

rangements (IRAs).

To be a qualified dividend subject to the 0%

distribution. The fund will send you a Form

•

Publication 721, Tax Guide to U.S. Civil

or 15% rate, all of the following requirements

1099-DIV or similar statement telling you the

Service Retirement Benefits.

must be met.

kind of distribution you received. This section

discusses the tax treatment of each kind of dis-

1. The dividend must have been paid by a

Comments and suggestions. We welcome

tribution, describes how to treat reinvested dis-

U.S. corporation or a qualified foreign cor-

your comments about this publication and your

tributions, and explains how to report

poration. See chapter 1 of Publication 550

suggestions for future editions.

distributions on your return.

for the definition of a qualified foreign cor-

You can write to us at the following address:

You may be treated as having received

poration.

a distribution of capital gains even if the

2. The dividend must not be of a type ex-

fund does not distribute them to you.

Internal Revenue Service

CAUTION

cluded by law from the definition of a quali-

See

Undistributed capital gains

under

Capital

Individual Forms and Publications Branch

fied dividend. See chapter 1 of Publication

Gain

Distributions.

SE:W:CAR:MP:T:I

550 for a list of these types of dividends.

1111 Constitution Ave. NW, IR-6526

Washington, DC 20224

Community property states. If you are mar-

3. You must meet the holding period require-

ried and receive a distribution that is community

ment

(discussed

next).

income, one-half of the distribution is generally

We respond to many letters by telephone.

considered to be received by each spouse. If

Holding period. You must have held the

Therefore, it would be helpful if you would in-

you file separate returns, you must each report

stock for more than 60 days during the 121-day

clude your daytime phone number, including the

one-half of any taxable distribution. See Publica-

period that begins 60 days before the

area code, in your correspondence.

tion 555, Community Property, for more informa-

ex-dividend date. The ex-dividend date is the

You can email us at *taxforms@irs.gov. (The

tion on community income.

first date following the declaration of a dividend

asterisk must be included in the address.)

If the distribution is not considered commu-

on which the buyer of a stock is not entitled to

Please put “Publications Comment” on the sub-

nity income under state law and you and your

receive the next dividend payment. When count-

ject line. Although we cannot respond individu-

spouse file separate returns, each of you must

ing the number of days you held the stock,

ally to each email, we do appreciate your

report your separate taxable distributions.

include the day you disposed of the stock, but

feedback and will consider your comments as

not the day you acquired it.

we revise our tax products.

Share certificate in two or more names. If

two or more persons, such as you and your

More information. See chapter 1 of Publi-

Ordering forms and publications. Visit

spouse, hold shares as joint tenants, tenants by

cation 550 for more information about qualified

to download forms and

the entirety, or tenants in common, distributions

publications, call 1-800-829-3676, or write to the

dividends.

on those shares are considered received by

address below and receive a response within 10

Capital Gain Distributions

each of you to the extent provided by local law.

days after your request is received.

Certain year-end dividends received in Janu-

These distributions are paid by mutual funds

Internal Revenue Service

ary. Dividends declared and made payable by

from their net realized long-term capital gains.

1201 N. Mitsubishi Motorway

mutual funds in October, November, or Decem-

The Form 1099-DIV (box 2a) you receive or the

Bloomington, IL 61705-6613

ber are considered received by shareholders on

fund’s statement will tell you the amount you are

December 31 of the same year even if the divi-

to report as a capital gain distribution. Capital

dends are actually paid during January of the

Tax questions. If you have a tax question,

gain distributions are taxed as long-term capital

following year.

check the information available on

gains regardless of how long you have owned

or call 1-800-829-1040. We cannot answer tax

the shares in the mutual fund.

Tax-exempt mutual fund. Distributions from

questions sent to either of the above addresses.

a tax-exempt mutual fund (one that invests pri-

Undistributed capital gains. Mutual funds

marily in tax-exempt securities) may consist of

Useful Items

may keep some of their long-term capital gains

ordinary dividends, capital gain distributions,

You may want to see:

and pay taxes on those undistributed amounts.

nondividend distributions, or undistributed capi-

You must report your share of these amounts as

tal gains like any other mutual fund. These distri-

Publication

long-term capital gains, even though you did not

butions generally are treated the same as

550

Investment Income and Expenses

distributions from a regular mutual fund.

actually receive a distribution. You can take a

Page 2

Publication 564 (2009)

Publication 564 - Mutual Fund Distributions - Internal Revenue Service - 2009 Page 2

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