Publication 564 - Mutual Fund Distributions - Internal Revenue Service

Reinvestment

credit for your share of any tax paid because you

ordinary dividends as a nominee, first report the

are considered to have paid it.

ordinary dividends on Schedule B (Form 1040A

of Distributions

or 1040), Part II, line 5. Report the total from line

Form 2439. The fund will send you Form

6 of that schedule on Form 1040, line 9a. Attach

Most mutual funds permit shareholders to auto-

2439, instead of Form 1099-DIV, showing your

Schedule B (Form 1040A or 1040) to your re-

matically reinvest distributions in more shares in

share of the undistributed long-term capital

turn.

the fund, instead of receiving cash. You must

gains in box 1a and any tax paid by the mutual

If you reported qualified dividends on line 9b,

report the reinvested amounts the same way as

fund in box 2. Attach Copy B of Form 2439 to

use the Qualified Dividends and Capital Gain

you would report them if you received them in

your return.

Tax Worksheet in the Form 1040 instructions or

cash. This means that reinvested ordinary divi-

the Schedule D Tax Worksheet in the Schedule

Increase to basis. When you report undis-

dends and capital gain distributions generally

D instructions, whichever applies, to figure your

tributed capital gains from a mutual fund, you

must be reported as income. Reinvested ex-

tax.

must increase your basis in the shares. You

empt-interest dividends generally are not re-

must keep Copy C of Form 2439 to show this

ported as income. Reinvested return of capital

Do not include capital gain distributions

increase. See

Adjusted

Basis, later.

distributions are reported as explained under

as dividend income on Form 1040 or

Nondividend

Distributions, earlier. See

Keeping

Schedule B (Form 1040A or 1040).

CAUTION

Exempt-Interest Dividends

Track of Your

Basis, later, to determine the basis

of the additional shares.

Capital gain distributions. If you received

A mutual fund may pay exempt-interest divi-

capital gain distributions, you report them either

How To Report

dends to its shareholders if it meets certain re-

directly on Form 1040, line 13, or on Schedule D

quirements. These dividends are paid from

(Form 1040), line 13, depending on your situa-

You must report mutual fund distributions on

tax-exempt interest earned by the fund. Since

tion. Report them on Schedule D (Form 1040),

Form 1040 or Form 1040A. You cannot report

the exempt-interest dividends keep their

line 13, unless both of the following are true.

mutual fund distributions on Form 1040EZ.

tax-exempt character, do not include them in

1. The only amounts you would have to re-

You cannot use Form 1040A and must use

income. However, you may need to report them

port on Schedule D (Form 1040) are capi-

Form 1040 in either of the following situations.

on your return. See

Information reporting re-

tal gain distributions from Form 1099-DIV,

quirement, next. The mutual fund should send

•

You received a nondividend distribution

box 2a (or similar statement).

you a Form 1099-INT showing your ex-

that must be reported as a capital gain

empt-interest dividends. Exempt-interest divi-

2. You do not have an amount in box 2b, 2c,

because it is more than your basis in your

dends should be shown on Form 1099-INT, box

or 2d, of any Form 1099-DIV (or similar

mutual fund shares.

statement).

•

You must report an undistributed capital

If both of the above statements are true, report

gain.

Information reporting requirement. Al-

your capital gain distributions directly on Form

though exempt-interest dividends are not tax-

1040, line 13, and check the box on that line.

Form 1040A. If you file Form 1040A, report

able, you must report them on your tax return if

Also, use the Qualified Dividends and Capital

your exempt-interest dividends on line 8b. Re-

you are required to file. This is an information

Gain Tax Worksheet in the Form 1040 instruc-

port your ordinary dividend distributions on line

reporting requirement and does not convert

tions to figure your tax.

9a and your qualified dividend distributions on

tax-exempt interest to taxable interest. Also, this

Undistributed capital gains. To report un-

line 9b. If the total of the ordinary dividends you

income is generally a “tax preference item” and

distributed capital gains, you must complete

received is more than $1,500 or you received

may be subject to the alternative minimum tax.

Schedule D (Form 1040) and attach it to your

ordinary dividends as a nominee, first report the

Form 1099-INT, box 9, should show the

return. Report these gains on Schedule D (Form

ordinary dividends on Schedule B (Form 1040A

tax-exempt interest subject to the alternative

1040), line 11, and attach Copy B of Form 2439

or 1040), Part II, line 5. Report the total from line

minimum tax. If you receive exempt-interest divi-

to your return. Report the tax paid by the mutual

6 of that schedule on Form 1040A, line 9a.

dends, you should see Form 6251, Alternative

fund on these gains on Form 1040, line 70, and

Attach Schedule B (Form 1040A or 1040) to

Minimum Tax — Individuals, for more informa-

check box a on that line.

your return.

tion.

If you reported qualified dividends on Form

Table 1. See

Table 1

for more information on

1040A, line 9b, use the Qualified Dividends and

Nondividend

where to report your mutual fund distributions on

Capital Gain Tax Worksheet in the Form 1040A

Distributions

Form 1040 or Form 1040A.

instructions.

Do not include capital gain distributions

Nominees. If you received a Form 1099-DIV

A nondividend distribution is a distribution that is

as dividend income on Form 1040A or

or Form 2439 as a nominee (that is, it includes

not out of earnings and profits and is a return of

Schedule B (Form 1040A or 1040).

amounts that actually belong to someone else,

your investment, or capital, in the mutual fund

CAUTION

other than your spouse), you must file a Form

and is shown on Form 1099-DIV, box 3.

1099-DIV or Form 2439 with the Internal Reve-

Capital gain distributions. If you received

A nondividend distribution reduces your ba-

nue Service and give the actual owner a copy.

capital gain distributions, you may have to file

sis in the shares. Basis is explained under

Keep-

See the instructions for Forms 1099 or Form

Form 1040. But you can report capital gain distri-

ing Track of Your

Basis, later. Your basis cannot

2439 for details.

butions on Form 1040A, line 10, instead of on

be reduced below zero. If your basis is zero, you

If you received an ordinary dividend distribu-

Form 1040, if both of the following are true.

must report the nondividend distribution on your

tion as a nominee, report it on Schedule B (Form

tax return as a capital gain. Report this capital

1. None of the Forms 1099-DIV (or substitute

1040A or 1040), line 5. Under your last entry on

gain on Schedule D (Form 1040). Whether it is a

statements) you received have an amount

line 5, enter a subtotal of all ordinary dividends

long-term or short-term capital gain depends on

in box 2b, 2c, or 2d.

listed. Below this subtotal, enter “Nominee Dis-

how long you held the shares.

tribution” and show the total ordinary dividends

2. You do not have to file Form 1040 for any

you received as a nominee. Subtract this

other reason. (For example, you must not

Example. You bought shares in a mutual

amount from the subtotal and enter the result on

have any other capital gains or any capital

fund in 2005 for $12 a share. In 2006, you

line 6.

losses.)

received a nondividend distribution of $5 a

If you received a capital gain distribution or

share. You reduced your basis in each share by

If you can use Form 1040A to report your

were allocated an undistributed capital gain as a

$5 to an adjusted basis of $7. In 2007, you

capital gain distributions, use the Qualified Divi-

nominee, report only the amount that belongs to

received a nondividend distribution of $1 per

dends and Capital Gain Tax Worksheet in the

you on Form 1040A, line 10, Form 1040, line 13,

share and further reduced your basis in each

Form 1040A instructions to figure your tax.

or Schedule D (Form 1040), line 13, whichever

share to $6. In 2008, you received a nondividend

is appropriate. Attach a statement to your return

distribution of $2 per share. Your basis was

Form 1040. If you file Form 1040, report your

showing the full amount you received or were

reduced to $4. In 2009, the nondividend distribu-

exempt-interest dividends on line 8b. Report

allocated and the amount you received or were

tion from the mutual fund was $5 a share. You

your ordinary dividend distributions on line 9a

allocated as a nominee.

reduce your basis in each share to zero and

and your qualified dividend distributions on line

report the excess ($1 per share) as a long-term

9b. If the total of the ordinary dividends you

Foreign tax deduction or credit. Some mu-

capital gain on Schedule D (Form 1040).

received is more than $1,500 or you received

tual funds invest in foreign securities or other

Publication 564 (2009)

Page 3

Publication 564 - Mutual Fund Distributions - Internal Revenue Service - 2009 Page 3

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