What Is Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains?

Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains is an Internal Revenue Service (IRS) form that mutual fund companies or other investment managers are required to distribute to shareholders to report undistributed long-term capital gains. Mutual funds are required to distribute most capital gains to shareholders, and the shareholders report these gains on Form 1099-DIV. If the fund company decides to retain the gains, it must pay taxes on behalf of shareholders and report these transactions on Form 2439.

Who Can File Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains?

Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains is produced by the U.S. Internal Revenue Service (IRS) for use by a mutual fund company to inform shareholders of long-term capital gains that it has not distributed to its investors. This retention of capital gains is a capital gain allocation but is relatively rare. Regulations require fund companies to disburse almost all gains to investors in a transaction known as a capital gains distribution. Funds tend to accumulate capital gains in November and December, but can generally warn investors with an estimate in advance. This is particularly true of actively managed funds, which trade more within their portfolios. Index funds tend to contain more static portfolios and thus produce fewer and more predictable capital gains.

Investors whose shares are held in tax-free accounts such as IRAs may file a Form 990-T to claim a tax refund on the taxes paid by the fund company. Shareholders subject to federal taxation must also adjust the basis for their shares upward. To do so, they first subtract the taxes reported by the fund company on Form 2439 from the capital gains reported on the same form. They should then add that difference to the prior cost basis.

Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains must be referenced by shareholders, even if they do not take possession of the retained gains, to report the gains and taxes on their own Form 1040, Schedule D, line 11.

How to File Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains

Form 2439 is used to provide shareholders of a regulated investment company (RIC) or a real estate investment trust (REIT) the amount of undistributed long-term capital gains. Complete Copies A, B, C, and D for each shareholder for whom the regulated investment company (RIC) or real estate investment trust (REIT) paid tax on undistributed capital gains under section 852(b)(3)(D) or 857(b)(3)(C). Attach Copy A of all Forms 2439 to Form 1120-RIC or Form 1120-REIT when it is filed at the appropriate IRS service center. Furnish Copies B and C of Form 2439 to the shareholder by the 60th day after the end of the RIC’s or the REIT’s tax year. Retain Copy D for the RIC’s or REIT’s records

Form 2439: Good News or Bad News?

The net result of a capital gains allocation is essentially no different to the shareholder than a capital gains distribution. In distribution, the investor who receives a capital gains dividend in cash pays taxes on that gain, then reinvests the remainder in new shares, which should end with very similar results to the investor who receives a Form 2439 from the fund. One potential difference is that the fund company likely pays a tax rate of 35 percent on the gains that it retains, while the individual may be subject to a lower rate. By reporting the dollar amount paid by the fund company on their individual Form 1040, the shareholder may benefit from the discrepancy between the fund company’s tax rate and their own.

Download Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains

Here is a link to a downloadable Form 2439.

  • Form 2439 is an IRS form mutual fund companies or other investment managers are required to distribute to shareholders in order to report undistributed long-term capital gains.
  • If the fund company decides to retain the gains, it must pay taxes on behalf of shareholders and report these transactions on Form 2439.
  • In distribution, the investor who receives a capital gains dividend in cash pays taxes on that gain, then reinvests the remainder in new shares, which should end with very similar results to the investor who receives a Form 2439 from the fund.