Questions and Answers 

Q: Can I use the information on my last account statement of the year to file my tax return?

Q: What accounts are included on the MFS Tax Form Summary?

Q: Why did I receive a 1099-DIV for a tax-exempt fund?

Q: What is the difference between the capital gain distribution paid by a fund and the capital gain or loss realized on the sale of fund shares?

Q: I paid a tax when my fund made a capital gain distribution and now must pay tax because I realized a gain upon selling my shares of the fund. Aren’t I being taxed twice?

Q: What is qualified dividend income?

Q: Is the MFS Average Cost Statement adjusted to reflect sales charges paid?

Q: For what accounts does MFS issue an average cost statement?

Q: What if I have already used another method to compute the cost basis of my shares? 

 

Q: Can I use the information on my last account statement of the year to file my tax return?

A: No. Your account statement reports distributions for accounting purposes. It may differ from the information required for federal tax purposes. Distributions subject to federal income tax are reported only on Form 1099-DIV. If you own a tax-exempt fund, distributions are reported on Form 1099-INT.

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Q: What accounts are included on the MFS Tax Form Summary?

A: Any account that earned $10 or more in federally taxable distributions or from which federal tax has been withheld will receive a Form 1099-DIV. Excempt-interest dividends are now reportable on Form 1099-INT. Accounts with the same taxpayer identification number (TIN) and address are combined on the Tax Form Summary. The IRS does not require that these forms be issued for certain accounts. Examples of such exempt accounts include IRAs, qualified pension and profit-sharing plans, and accounts owned by certain institutions. In addition, Form 1099-B is not issued for accounts invested in money market funds. If you believe you have an exempt account and you received a 1099 form, please contact us.

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Q: Why did I receive a 1099-DIV for a tax-exempt fund?

A: A tax-exempt fund may realize some capital gains or losses as a result of certain transactions, including options and futures transactions. Capital gain distributions are federally taxable. For some bonds purchased at a discount after April 30, 1993, some or all of the gain is taxed as ordinary income rather than as a capital gain. In addition, distributions of income derived from investments in taxable securities, including repurchase agreements and a portion of the discount relating to certain stripped tax-exempt bonds and their coupons, are taxable.

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Q: What is the difference between the capital gain distribution paid by a fund and the capital gain or loss realized on the sale of fund shares?

A: During a fund’s fiscal year, it buys and sells securities. If, at the end of the year, there is a net gain, it is passed on to shareholders in the form of a capital gain distribution. This distribution is taxable and is reported in Box 2A of Form 1099-DIV.

A capital gain or loss on your shares occurs when you sell or exchange fund shares. If you sell your shares for more than your cost, you will realize a capital gain. The proceeds of transactions that may produce a capital gain or loss are reported in Box 2 of Form 1099-B.

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Q: I paid a tax when my fund made a capital gain distribution and now must pay tax because I realized a gain upon selling my shares of the fund. Aren’t I being taxed twice?

A: No. You must pay income tax on dividend and capital gain distributions in the year you receive them. When you sell your shares for more than you paid for them, you must also pay tax on the gain. However, when you compute the amount of your gain, any reinvested dividends or reinvested capital gain distributions will increase your total cost basis (the cost of your shares) and thus will reduce your gain.

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Q: What is qualified dividend income?

A: These are dividends paid to the fund during the tax year from domestic corporations and qualified foreign corporations.  These dividends are now taxed at rates of 15% or 5% depending on your taxable income bracket.  Please refer to the IRS 1040 Instructions for more details.

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Q: Is the MFS Average Cost Statement adjusted to reflect sales charges paid?

A: Yes. Any front-end sales charge paid, as well as any contingent deferred sales charge, is reflected in the average cost per share.

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Q: For what accounts does MFS issue an average cost statement?

A: The MFS Average Cost Statement will be provided for certain accounts that were opened after January 1, 1990, and had a redemption or an exchange during the current tax year.

There are, however, certain exceptions. MFS cannot provide an average cost statement for accounts that do not realize a gain or loss on the redemption or exchange of shares. Examples include money market funds and retirement plan accounts. The MFS Average Cost Statement also is not issued for accounts that received shares as a result of a transfer unless you provide MFS with the cost-basis information needed for the calculation. Finally, we cannot provide the statement for any account with certificate shares because all shares must be held on deposit to use the average cost method of calculation.

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Q: What if I have already used another method to compute the cost basis of my shares?

A: If you used a method other than average cost to calculate the cost basis for a particular fund, you can change the method of computation, but you cannot use the information provided in the MFS Average Cost Statement because the statement assumes that all previous computations were made using the average cost - single category method. Once you have elected to use an average cost method for a particular fund, you cannot change to any other method without first obtaining IRS approval.

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