Dividend reinvestment plans let you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan and use your dividends to buy more stock at a price equal to its fair market value, you must report the dividends as income.

If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as income the fair market value of the additional stock on the dividend payment date.

Other rules may apply. For additional information, refer to Chapter 9 of Publication 17, Your Federal Income Tax, and Tax Topic 404, Dividends.

References:

• Publication 17, Your Federal Income Tax
• Publication 564, Mutual Fund Distributions
• Tax Topic 404, Dividends