by Roger Russell

The annual scramble to organize tax information to account for taxpayers' mutual fund transactions should become considerably easier, thanks to a service being developed by John Maddox, a Detroit-based CPA.

His is a new, Web-based portal that aims to solve one of the most vexing investment-related problems in preparing tax returns: a lack of information about the tax implications of taxpayers' holdings in mutual funds and other investment instruments.

Because mutual funds investments are made up of different types of equity and debt instruments that carry varying types of tax treatments, it is crucial to know the composition of each distribution to shareholders for tax purposes. The portal will provide mutual fund information on U.S. Government obligations, tax exempt municipal bonds, capital gains distributions, the alternative minimum tax, the foreign tax credit, intangibles tax information and the dividends received deduction.

That type of information has always been available, but not in any organized or convenient way. Mutual fund companies send it to their shareholders, who often either mistake the tax information for junk mail or fail to pass it on to their tax preparers. Accounting firms and tax preparers may try to compile such information systematically from their customers, so that all of their staff members can access it, but usually they can't obtain copies of the mailers from each of the hundreds of financial services companies that operate mutual funds. is the first initiative to make use of the convenience of the Internet as a clearinghouse for all of this data so that it can be easily accessed by financial-services companies, taxpayers and tax preparers.

The site is free to users.

"Our site is an excellent example of making sensible use of the Internet to fulfill a real need that, frustratingly, usually doesn't get fulfilled through existing venues," said Maddox, the president of "We estimate that while 100 percent of financial services firms attempt to get this information in the hands of their stakeholders, only about 30 percent of taxpayers either are making use of the information themselves or putting it in the hands of their return preparers.  We expect our service to move that percentage up dramatically."

This year, especially, Maddox believes will be a welcome new instrument for taxpayers and return preparers because they're already dealing with the fallout from juggling their investments in a volatile and mostly negative market. Every available extra measure of precision can be valuable to taxpayers in this environment.

Financial services companies would also benefit, as most of them do not have their own proprietary mutual funds.  These firms sell other companies' mutual funds, so they too need - but cannot get easy access to - tax information from the mutual fund companies for their clients.

The portal also hopes to bring about greater compliance with the particularities of investment tax law just by raising the profile of the issue. Right now, Maddox noted, many investors aren't even aware that they need to be taking this information into account if they prepare their own tax returns or that it's their obligation to supply it to their preparers.

Maddox, a senior manager with Mathews Reich Perna & Rottermond, PC, a Bingham Farms, Mich.-based CPA firm, has been in the accounting profession for a decade. He became a tax specialist, he said, "because I was fascinated by the complexities and continuing evolution of income tax law."  Maddox has also worked for the national accounting firm Grant Thornton, as well as another metro-Detroit CPA firm.

The idea for the Web site came to Maddox while dealing with the mutual fund tax issue every year. He was frustrated at not being able to have all the mutual fund tax information in one centralized location and having to request each fund's tax information separately. His goal is eventually to have every financial service company and CPA firm that offers tax services utilize the Web site to avoid duplication of efforts and to minimize cost.

"The mutual fund information gets to investors in a separate mailing from the 1099s that they get at the end of January," said Maddox.  "That's why many of them think it's junk mail and discard it, or they think their tax preparer already has access to the information."

Since the site in its startup phase, there are currently only a limited number of funds listed on it. By the end of April, he expects to have 30 funds listed, and by next tax season, Maddox hopes to have information for several hundred funds on the site.

Ultimately, he hopes the site would provide tax data from the majority of mutual funds worldwide. "There are more than 500 funds located in the U.S., and about 15,000 mutual fund families worldwide," according to Maddox.

"The goal is for the site to have anything the CPA or tax preparer could possibly use during tax season," Maddox said.  "We'll also include reporting information for REITs (real estate investment trusts) and PFICs (passive foreign investment companies)."

Information on PFICs is crucial to the U.S. investor who wishes to make a qualifying electing fund (QEF) election to avoid PFIC treatment.

Eventually, Maddox anticipates, the site will host additional investment tax information on corporate mergers and spin-offs, REMICs (real estate mortgage investment conduits) and quarterly corporate stock dividend distribution information.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access