Return of Capital (ROC) is a distribution paid to fund shareholders in excess of a fund's current and accumulated earnings and profits. An ROC distribution is generally nontaxable and reduces a shareholder's cost basis in the investment. If an ROC distribution exceeds a shareholder's cost basis, then any additional amount is treated as a capital gain.
For example: A shareholder buys 1 share of Fund A for $10. Fund A pays a $1 per share ROC distribution. The shareholder's cost basis in Fund A after the ROC distribution is $9 per share ($10 initial investment less $1 ROC distribution).
Refer to IRS Publication 551, Basis of Assets for further information.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.