SECTION 3. REPORTING OR

DESIGNATION OF RATE GROUPS

This notice modifies the reporting and designation rule described in section 3 of Notice 97–64 (which that notice called a “designation rule”) to require (rather than merely permit) a RIC that reports capital gain dividends or designates undistributed capital gains to indicate a rate group for its capital gain dividends or undistributed capital gains. This notice also modifies the reporting and designation rule to reflect both changes in capital gains rates under § 1(h) since Notice 97–64 was published and changes that the RIC Modernization Act made to the procedures for capital gain dividends under § 852(b).

If a RIC reports a dividend as a capital gain dividend for a taxable year in written statements furnished to its shareholders, as described in § 852(b)(3)(C), the RIC must also report in these statements the amounts of the dividend that constitute a “28% rate gain distribution,” an “unrecaptured section 1250 gain distribution,” a “section 1202 gain distribution,” and a “20% rate gain distribution.” Similarly, if a RIC designates an amount as undistributed capital gains for a taxable year in a written notice mailed to its shareholders, as described in § 852(b)(3)(D), the RIC must also designate in the written notice the amounts of the undistributed capital gains that the shareholders must include

4Under the current definition in § 871(k)(2)(C) (which applies for purposes of §§ 871(k)(2) and 881(e)), the term “short-term capital gain dividend” does not include a dividend with respect to a RIC’s taxable year beginning after December 31, 2014.

Bulletin No. 2015–24 1059 June 15, 2015

as a 28% rate gain distribution, an unrecaptured section 1250 gain distribution, a section 1202 gain distribution, or a 20% rate gain distribution.

The written statements or designations may be made in some circumstances on Internal Revenue Service forms. As of the date of this notice, Form 1099–DIV (dividends and distributions) and Form 2439 (undistributed capital gains) provide boxes corresponding both to total capital gain dividends (total long-term capital gain on Form 2439) and to all but one of the possible components of that total. That is, there are boxes for unrecaptured section 1250 gain, for 28% rate gain, and for section 1202 gain, but not for 20% rate gain. If the written statements or designations described in this section 3 are made on Form 1099–DIV or Form 2439 (or successor forms that similarly provide boxes for reporting total capital gain dividends or total undistributed capital gain and for reporting all but one of the possible component types), then any amount of capital gain dividend or undistributed capital gain that is reported in the total and that is not reported in one of the component boxes is deemed to be reported or designated by the RIC as 20% rate gain (or whichever component type is missing from any such successor form). These deemed reports and designations are subject to the same limits as written reports and designations of rate groups. If the information on the forms is incomplete or incorrect, penalties may apply under § 6721 (failure to file correct information returns) and § 6722 (failure to furnish correct payee statements).

Reports (including deemed reports) and designations are ineffective for purposes of determining the rate group for a capital gain dividend or undistributed capital gains to the extent that the amounts reported or designated exceed the limits described in section 2 or section 5 of this notice. An amount that otherwise meets the requirements to be a capital gain dividend (or undistributed capital gain) does not fail to be a capital gain dividend (or undistributed capital gain) solely because of a failure by the RIC to make an effec

tive report (or designation) of a rate group for the amount.