1 See Institute Memorandum to Tax Members No. 27-97, Accounting/Treasurers Members No. 31-97,
Operations Members No. 13-97, International Members No. 12-97, Closed-End Investment Company
Members No. 23-97, Unit Investment Trust Members No. 28-97 and Transfer Agent Advisory Committee
No. 36-97, dated August 1, 1997.
2 See Institute Memorandum to Tax Committee No. 33-97 and Accounting/Treasurers Committee No.
37-97, dated October 6, 1997.
3 See Institute Memorandum to Tax Members No. 37-97, Accounting/Treasurers Members No. 40-97,
Operations Members No. 22-97, Closed-End Investment Company Members No. 29-97, Unit Investment
Trust Members No. 40-97 and Transfer Agent Advisory Committee No. 56-97, dated October 10, 1997.
[9345]
October 17, 1997
TO: TAX MEMBERS No. 38-97
ACCOUNTING/TREASURERS MEMBERS No. 42-97
BROKER/DEALER ADVISORY COMMITTEE No. 16-97
CLOSED-END INVESTMENT COMPANY MEMBERS No. 30-97
OPERATIONS MEMBERS No. 23-97
TRANSFER AGENT ADVISORY COMMITTEE No. 57-97
UNIT INVESTMENT TRUST MEMBERS No. 42-97
RE: IRS FINALIZES SCHEDULE D FOR REPORTING CAPITAL GAINS AND
LOSSES
______________________________________________________________________________
The Internal Revenue Service ("IRS") has finalized the Form 1040 Schedule D, Capital
Gains and Losses, and instructions (attached) that will be used by individuals to report capital
gains realized during 1997. Release of the Schedule D was delayed until Congress and the
Administration agreed on whether or not to modify the recently-enacted capital gains rules1 to
make certain "technical corrections" that would apply retroactively to the original enactment of
the law.2 The final version of Schedule D reflects the capital gains rules as they will appear
once Congress enacts the Tax Technical Corrections Act of 1997, the bipartisan bill supported
by the Administration that was approved by the House Ways and Means Committee on
October 9.3
Every fund shareholder who receives a capital gain dividend or realizes a capital gain or
loss on the redemption or sale of fund shares will be required to file a Schedule D with his or
her 1997 tax return. Previously, fund shareholders were not required to file Schedule D if their
4 Any undistributed capital gain reported to shareholders on IRS Form 2439 will be reported on line 11 of
Schedule D.
only capital gain transactions were capital gain distributions reported to them on IRS Form
1099-DIV.
The full amount of a shareholder’s capital gain distributions received from funds will be
reported on line 13(f) of Schedule D.4 Fund shareholders also will report, on line 13(g), the
portion of the amount reported on line 13(f) that is taxed at a 28% maximum rate. This amount,
which includes gains defined under the Taxpayer Relief Act of 1997 as "pre-effective date gain,"
"mid-term gain" and "collectibles gain," will be called "28% rate gain" once the technical
corrections bill is enacted and, accordingly, is called "28% rate gain" on the Schedule D.
Gains and losses on the redemption or sale of fund shares will be reported on Part I of
Schedule D (Short-Term Capital Gains and Losses) if the shares were held for one year or less
and on Part II (Long-Term Capital Gains and Losses) if they were held for more than one year.
Column (f) of Part II will be used to report all gain or loss on assets held for more than one year;
column (g) of Part II will be used to report that portion of the gain or loss reported in column (f)
that is "28% rate gain or loss."
Part IV of Schedule D -- Tax Computation Using Maximum Capital Gains Rates -- is an
expanded version of the worksheet that previously was contained in the instructions to IRS
Form 1040. In prior years, only fund shareholders with taxable income in excess of the amount
taxed at a 28% marginal rate were required to complete this worksheet. For 1997, all fund
shareholders reporting taxable income and net capital gains will be required to complete Part
IV.
Keith D. Lawson
Associate Counsel - Tax
Attachments