7944 / How is a mutual fund dividend taxed if it is declared for a prior year?
As a general rule, ordinary income dividends and capital gain dividends declared for a prior mutual fund tax year are treated as received and included in income (as discussed in Q 7938) by the shareholder in the year in which the distribution is made. Similarly, exempt-interest dividends for a prior mutual fund tax year are treated as received in the year when the distribution is made, but are not included in the shareholder’s income (see Q 7938).1
However, if a mutual fund declares a dividend in October, November, or December of a calendar year, which is payable to the shareholders on a specified date in such a month, the dividend is treated as having been received by the shareholders on December 31 of that year (so long as the dividend is actually paid during January of the subsequent calendar year).2 This rule applies to ordinary income dividends, capital gain dividends, and exempt-interest dividends.
1. IRC § 855; Treas. Reg. § 1.855-1.
2. IRC § 852(b)(7).