Net Investment Income Tax Reporting Requirements

Tip: The information described in this section should be given directly to the shareholder and shouldn’t be reported by the corporation to the IRS

To allow shareholders to correctly figure the net investment income tax where a shareholder disposes of stock in the corporation during the tax year, the corporation may be required to provide the shareholder with certain information. The net investment income tax is a tax imposed on an individual’s, trust’s, or estate’s net investment income. Net investment income includes the net gains or losses from the sale of stock in the corporation. A shareholder who is actively involved in one or more of the corporation or subsidiary pass-through entities’ trades or businesses (other than trading in financial instruments or commodities) can reduce the amount of the gain or loss included in its net investment income. However, to figure its net investment income, the active shareholder needs certain information from the corporation.

Generally, the corporation must provide certain information to the shareholder if the corporation knows or has reason to know the following.

1. The shareholder disposed of stock in the corporation.
2. The shareholder materially participates (within the meaning of the passive activity loss rules (section 469)) in one or more of the trades or businesses (within the meaning of section

162. of the corporation or a subsidiary pass-through entity (other than trading in financial instruments or commodities).

3. The shareholder doesn’t qualify for the optional simplified reporting method for figuring its net investment income

associated with the disposition of the stock. For more information, see the instructions for Form 8960, line 5c.

Information to be provided to shareholder. Generally, the corporation must provide the shareholder with its pro rata share of the net gain and loss from the deemed sale for FMV of the corporation’s property, other than property that relates to the trades or businesses in which the shareholder materially participates, as determined under the passive activity loss rules applicable to the transfer of an interest in a pass-through entity. For more information, see the instructions for Form 8960, line 5c.

Tip: If a shareholder who qualifies for the optional simplified reporting method prefers to determine net gain or loss under the general calculation the corporation may but isn’t obligated to provide the information to the shareholder at the shareholder’s request