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Introduction This publication provides federal income tax information for individual shareholders of mutual funds, including money market funds. It explains how to report distributions paid or allocated to you by a mutual fund and any expenses connected with your investment. It also explains how to figure and report your gain or loss when you sell, exchange, or redeem your mutual fund shares. A comprehensive example, with filled-in forms, appears at the end of the publication. A mutual fund is a regulated investment company generally created by "pooling" funds of investors to allow them to take advantage of a diversity of investments and professional management. A money market fund is a mutual fund that tries to increase current income available to shareholders by buying short-term market investments. Money market funds pay dividends and should not be confused with bank money market accounts that pay interest. Qualified retirement plans. The rules in this publication do not apply to mutual fund shares held in individual retirement arrangements (IRAs), H.R. 10 (Keogh plans), section 401(k) plans, and other qualified retirement plans. The value of the mutual fund shares and earnings allocated to you are included in your retirement plan assets and stay tax free until the plan distributes them to you. The tax rules that apply to retirement plan distributions are explained in the following publications. Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Keogh Plans). Publication 571, Tax-Sheltered Annuity Programs for Employees of Public Schools and Certain Tax-Exempt Organizations. Publication 575, Pension and Annuity Income. Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs). Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.

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