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When a corporation returns capital to shareholders, it can trigger different IRS filing requirements depending on the nature of the transaction and who it affects. Two key forms to be aware of are Form 5452 and Form 8937. While they may seem similar at first glance, they serve distinct purposes.
What is Form 5452?
Form 5452 is used to report nondividend distributions made by a corporation to its shareholders. These are typically return of capital payments, which reduce the shareholder’s basis in the stock, rather than being treated as taxable dividends.
When to File Form 5452:
- You’re a C corporation making a return of capital (nondividend distribution)
- You are filing a corporate income tax return (Form 1120)
Key Points:
- Filed with your corporate tax return
- Helps the IRS track reductions in shareholder basis
- Common for closely held or private companies
What is Form 8937?
Form 8937 is used to report organizational actions that affect the basis of securities, such as stock. This includes returns of capital, stock splits, mergers, and other restructuring events.
When to File Form 8937:
- You’re a corporation or other entity that takes an action affecting the basis of your securities
- You are notifying shareholders about the change
Key Points:
- Must be filed within 45 days of the action
- Can be filed with the IRS or made publicly available online
- Required for both public and some private companies if the basis is affected
- Especially important for large shareholder bases
Which One Should You File for Return of Capital?
Here’s a quick decision guide:
| Scenario | Use Form |
|---|---|
| You’re a private corporation making nondividend distributions to a few shareholders | Form 5452 |
| You’re a public or private company making a return of capital that affects the basis of stock and must notify shareholders | Form 8937 |
| You’re required to report basis changes AND file your tax return | Possibly both |
Summary
| Form | Purpose | Who Files It | Filed With |
| 5452 – Corporate Report of Nondividend Distributions | Reports nondividend (return of capital) distributions | Corporations | With Form 1120 |
| 8937 – Report of Organizational Actions Affecting Basis of Securities | Reports organizational actions affecting stock basis | Issuers (public or private) | Filed with the IRS on or before the 45th day following organizational action or, if earlier, January 15 of the year following the calendar year of the organizational action. Each partner, as the date of the action, must receive a copy. |
Need help deciding which form applies to your situation? Drop a comment below or reach out for personalized guidance!
Disclaimer: The information provided herein is intended solely for informational purposes and no person(s) or other third-party may rely upon it as financial, tax, or legal advice or use it for any other purposes. As a result, Royal Financial, and any affiliates, assume no responsibility whatsoever to readers, or any other persons for that matter, as a result of the information contained herein.