Form 2439 is an IRS form used by Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) to report undistributed long-term capital gains. Such fund companies must distribute these profits to shareholders or retain them and pay taxes on their behalf. Allocating capital gains in this way means the result for the shareholder is essentially the same as receiving a capital gains distribution.

RICS and REITS must prepare Form 2439 as a way to provide information to the IRS and shareholders. Form 2439 must be used when there are long-term capital gains that are not distributed to shareholders. The form includes the name and address of each shareholder and the total allocable amount of undistributed long-term capital gains involved.

Distributions of capital gains through Form 2439 do not qualify as dividends or interest, meaning they are not federally taxable. This benefit is extended to shareholders of RICs and REITs who receive distributions of long-term capital gains through Form 2439. Any amount of capital gain distributions required to be reported in box 1e of form 1099DIV is subject to ordinary income tax, regardless of its designation as a capital gain or dividends.

Form 2439 is also used to report deemed payouts of capital gains for those funds whose shareholders used a year-end tax loss selling strategy to offset their taxable gains. This is known as “alternative tax treatment.” Under this method, the fund company will retain the gains on behalf of shareholders who have taken losses on other investments earlier in the year. Form 2439 is the way to report these transactions to the IRS.

Form 2439 is a critical form for those investors who have undistributed long-term capital gains, as it helps them keep track of their tax liability and ensure that they are properly paying taxes on profits generated by their investments. Ultimately, Form 2439 allows RICs and REITs to keep their shareholders informed and accountable with regard to their long-term capital gains.