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The distribution will be reported as taxable for your daughter - because that is HER account - not yours.You are the custodial for that account - but not the owner.So for that distribution - a reporting form will be issued in your daughter's name and her SSN.And your daughter might be required to file the tax return depending what exactly is reported.If she realizes a loss - that would be calculated on her tax return - and there would not be any tax liability while reporting might be needed.
However if your daughter would not report that transaction - the IRS might not know whether your daughter a gain or loss - and might think she has a gain... So that might be a matter of reporting not a matter of having tax liability.