Request Reprint Send us your request to reprint copyrighted material. The owners of mutual funds have little control over the tax implications that come with owning a fund. Funds are managed by managers who have been given discretionary authority by the shareholders of the fund to buy and sell the securities within the fund.
Mutual funds generate liabilities three ways for investors.
In these two cases, even if the fund shareholder elects to use the distributions to buy additional shares, the distributions are still taxable. Pretty frightening results can occur. He hadn't really looked at the form 1099 to see how much income he would have to report. The fund had sold a number of stocks in its portfolio that year that had significantly appreciated in value. This client's income tax liability ended up about 40 percent greater than he had expected all because of this one unexpected form 1099.