Tax & Accounting Blog

IRS Releases Form 8937 to Report Organizational Actions Affecting Security Holders’ Basis

ONESOURCE, Tax Information Reporting, Trust Tax February 22, 2012

The IRS has released on its website Form 8937, Report of Organizational Actions Affecting Basis of Securities, and its Instructions. The Instructions include details on who must file the form and how certain entities can otherwise satisfy their organizational action reporting obligations.

New form and instructions. The Form 8937 contains two parts. Part I consists of the identifying information of the reporting issuer, the date and classification of the relevant action, and other information such as account numbers and ticker symbol. Part II requests more detailed information about the organizational action, including the quantitative effect of the action on the basis of the security in the hands of a U.S. taxpayer, how that change is calculated, the Code sections implicated by the action, whether any resulting loss can be recognized, and any other relevant information.

The instructions to Form 8937 also include the following:

Who must file. Form 8937 must be filed by an issuer of a specified security that takes an organizational action that affects the basis of all holders of the security (or all holders of a class of the security). Examples of such an action include a nontaxable cash or stock distribution to shareholders. The form is filed for a distribution of property to shareholders only if the issuer knows that the distribution won’t be taxable as a dividend.

Exceptions. The issuer isn’t required to file Form 8937 with IRS if, by the due date, a completed Form 8937 is posted to its primary public website in a readily accessible format. Additionally, no reporting is required if the issuer determines that all holders of the security are exempt recipients, or if the issuer is a RIC that can hold itself out as a money market fund under Rule 2a-7 of the Investment Company Act of 1940.

Special rules for S corporations, RICs, and REITs. S corporations can satisfy the reporting requirement for any organizational action affecting the basis of its stock if it timely reports the effect of such action on a timely filed Schedule K-1 (Form 1120S) for each shareholder and timely gives a copy to all proper parties. A RIC or real estate investment trust (REIT) that reports undistributed capital gains to shareholders on Form 2439 can satisfy the organizational action reporting requirements for those undistributed gains if it timely files and gives Form 2439 to all proper parties.

Due date. Form 8937 must be filed with IRS on or before the earlier of: (i) the 45th day following the organizational action, or (ii) January 15 of the year following the calendar year of the organizational action.

Thus, for any organizational action occurring after Dec. 1, the issuer has to provide the information return not later than Jan. 15 of the next calendar year.

On January 13, 2012, the IRS released Notice 2012-11, providing issuer’s with transitional relief. The notice provides that posting either Form 8937, or the required information, in a readily accessible format to an issuer’s primary public Web site will satisfy an issuer’s requirement to file and furnish Form 8937 for organizational actions occurring in 2011. The notice also provides that the Internal Revenue Service will not impose penalties for reporting incorrect information against issuer’s under sections 6721 or 6722 related to filing and furnishing Form 8937 for 2011 organizational actions provided that they make good-faith efforts in timely posting the Form 8937 or the required information on the issuer’s primary public Web sites or filing accurate Forms 8937 and furnishing the corresponding issuer statements.