My 1099-Div from AIG funds is showing a capital gains in box 2a. Why am I paying taxes if not taking money from the fund

[VolvoGirl]

You always pay tax on dividends and capital gains even if you didn't take it out.  Did you reinvest it?  Reinvested dividends are really 2 transactions.  A Dividend or Capital Gain and then a buy.  Just as if you got the check and then bought new shares with it.

[Anita01 · Accepted solution]

VolvoGirl is exactly correct.  Your need to pay tax is based on a principle called Constructive Receipt.  You are considered to have received the capital gains distribution, which was yours to use in any way you chose. Since you chose to reinvest it, it becomes your cost basis for the shares you purchased with the reinvested money.