What are the potential tax and accounting implications for investors holding these funds?

Tax implications

Because the loss stems from a suspected securities‑fraud event, the decline in the fund’s net‑asset value (NAV) is treated as an realized loss for tax purposes once the position is sold or the fund is liquidated. Investors can claim the loss as a capital‑loss deduction on their 2025‑2026 tax return, subject to the ordinary‑income limitation (up to $3,000 per year) and the carry‑forward rules for excess losses. The loss is short‑term or long‑term depending on how long the shares were held before the sale; the character of the loss follows the holding period of the underlying fund shares. If the loss is large enough, it can offset gains elsewhere in the portfolio, reducing overall tax liability.

The wash‑sale rule still applies: if an investor repurchases substantially identical securities within 30 days before or after the loss‑realizing sale, the loss is disallowed and added to the basis of the new position. Because the fund has been renamed (RMHIX, RMHVX, RMJAX) but retains the same underlying portfolio, buying the “new” fund within the wash‑sale window could trigger the rule.

From an accounting standpoint, the loss should be reflected as an impairment of the investment on the investor’s balance sheet, reducing the carrying amount of the equity position to its current market value (or to the amount recovered from any settlement). If the lawsuit results in a partial or full recovery, the proceeds must be recorded as other income (or a reversal of the previously recognized loss) in the period received, and the tax basis of the investment must be adjusted accordingly. Proper disclosure of the contingent litigation and its potential impact on the fund’s NAV is also required in any audited financial statements.

Actionable insight

Tax‑loss harvesters can lock in the loss now, claim the capital‑loss deduction, and avoid the wash‑sale pitfall by staying out of the fund for at least 31 days. Meanwhile, keep the lawsuit’s progress on the radar: a favorable settlement could generate a taxable recovery that offsets the earlier loss, while a negative outcome may cement the loss as permanent. Adjust portfolio risk models to reflect the heightened credit‑risk profile of the municipal bond fund and consider reallocating to higher‑quality municipal or short‑duration assets until the litigation’s resolution clarifies the fund’s future cash‑flow profile.