Form 2439: What Is It, Who Files It and Who Gets It?

Form 2439 is a tax document that a regulated investment company (RIC) or real estate investment trust (REIT) issues when it retains capital gains and pays taxes on behalf of its shareholders. Instead of distributing the gains, the fund provides Form 2439 to shareholders, allowing them to report the income and claim a tax credit. The form identifies who’s responsible for filing it and how recipients can use the information for their own tax reporting.

Form 2439 reports a shareholder’s portion of long-term capital gains that a fund has chosen to retain rather than distribute. In these cases, the fund pays tax on the gains and passes both the income and tax credit to shareholders. The form provides the details necessary for shareholders to report the income and claim a corresponding credit on their individual returns.

Although no cash changes hands, the shareholder is taxed as if they received the gain. To prevent double taxation, shareholders increase their investment’s cost basis by the reported gain. This comes into play for shareholders when calculating capital gains or losses if they eventually sell the investment.

RICs or REITs typically issue this form, which appears most often in situations where retaining capital gains is more efficient. (An RIC is an entity, often a mutual fund, that meets specific IRS requirements and distributes most of its income to shareholders to avoid corporate tax.)

While Form 2439 doesn’t impact day-to-day investing activity, it has real tax implications at filing time.