IRS Form 8937- Reporting Corporate Actions

Posted by admin on Aug 8, 2013 1:59:47 PM

Starting in 2012, Regulated Investment Companies (“RIC’s”) are required to file Form 8937 to report corporate actions that affect the basis of the RIC stock. Such corporate actions include, but are not limited to, mergers, stock splits, spin-offs, return of capital distributions, etc.

There are two parts to filing Form 8937 information:

  • Information/statements to be furnished to shareholders and nominees of a fund
  • Information to be filed with the IRS.

IRC Section 6045B and its regulations require the information that is reported on the form. IRC Sections 6721-6724 deal with penalties associated with late or incorrect information.

Due Dates

A fund is not required to file Form 8937 with the IRS if, by the due date (which we will discuss below), it posts a completed and signed Form 8937 in a "readily accessible" format in an area of the fund's primary public Website that is dedicated to Form 8937, and if the Form is kept accessible to the public on the website (or a successor's primary website) for 10 years.

If not posted on the fund's Website, Form 8937 must be filed with the IRS on or before the 45th day following the organizational action or, if earlier, January 15 of the year following the calendar year of the organizational action.

The fund has an option of providing 8937 information to shareholders and nominees by either providing them with an actual copy of Form 8937, posting 8937 on the Website, or giving a written statement in lieu of Form 8937. The written statement must include the same information that is on Form 8937 and state that the information is being reported to the IRS.

A fund will be considered to have given a copy of Form 8937 to all holders and nominees if it posts a completed Form 8937 on its primary public Website on or before the 45th day following the organizational action or, if earlier, January 15 of the year following the calendar year of the organizational action, as mentioned above.

Returns of capital may result in different due dates for reports to holders and nominees and for the IRS because they cannot technically be determined until at least the fiscal year end of the fund. However, the IRS wants the information reported during the year even if reasonable assumptions need to be made. This presents an issue, especially for a fund that distributes monthly. The best way to avoid potential penalties is for a fund to file Form 8937 within the prescribed time period following the corporate action and disclose the fact that such reporting is based on the best information available at the time. As soon as additional information is available, or the actual amount of the return of capital is known, Form 8937 should be amended.

Penalties

IRC Sections 6721 - 6724 address penalties for 8937 information that is late or incorrect. Penalties that are associated with information returns to payees and to the IRS apply to this information. Form 8937 is included in the definition of an "information return" (IRC Section 6724(d)(1)(B)) and of a "payee statement" (IRC Section 6724(d)(2)(J)).

As with other information returns, no penalties are imposed for failures that are due to reasonable cause (and not willful neglect). Given these penalties, in cases where a late filing occurs, in an attempt to establish reasonable cause, a fund may want to consider adding a statement to Form 8937 stating why it is being filed late, e.g., a late determination of a return of capital due to additional information being received subsequent to the due date of the form, etc.

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