Talk about unfair. Even though, on average, investments have plummeted by over 35%, many taxpayers are receiving 1099’s from the brokerage companies for taxable distributions and dividends. How can that be? Even though a fund’s value has declined, it may have realized capital gains over the course of the year. This comes from profits from selling specific securities before the decline in value. Many mutual funds sold off holdings in September and October, which caused the paper gains. Even if you did not actually cash out of the fund, the fund cashed out of the security and those unfortunate investors are left holding a tax bill.
