26 USC 852 - Taxation of regulated investment companies and their shareholders
(a) Requirements applicable to regulated investment companies
The provisions of this part (other than subsection (c) of this section) shall not be applicable to a regulated investment company for a taxable year unless
The provisions of this part (other than subsection (c) of this section) shall not be applicable to a regulated investment company for a taxable year unless
(1) the deduction for dividends paid during the taxable year (as defined in section 561, but without regard to capital gain dividends) equals or exceeds the sum of
(A) 90 percent of its investment company taxable income for the taxable year determined without regard to subsection (b)(2)(D); and
(2) either
(A) the provisions of this part applied to the investment company for all taxable years ending on or after November 8, 1983, or
(B) as of the close of the taxable year, the investment company has no earnings and profits accumulated in any taxable year to which the provisions of this part (or the corresponding provisions of prior law) did not apply to it.
The Secretary may waive the requirements of paragraph (1) for any taxable year if the regulated investment company establishes to the satisfaction of the Secretary that it was unable to meet such requirements by reason of distributions previously made to meet the requirements of section 4982.
(b) Method of taxation of companies and shareholders
(1) Imposition of tax on regulated investment companies
There is hereby imposed for each taxable year upon the investment company taxable income of every regulated investment company a tax computed as provided in section 11, as though the investment company taxable income were the taxable income referred to in section 11. In the case of a regulated investment company which is a personal holding company (as defined in section 542) or which fails to comply for the taxable year with regulations prescribed by the Secretary for the purpose of ascertaining the actual ownership of its stock, such tax shall be computed at the highest rate of tax specified in section 11 (b).
There is hereby imposed for each taxable year upon the investment company taxable income of every regulated investment company a tax computed as provided in section 11, as though the investment company taxable income were the taxable income referred to in section 11. In the case of a regulated investment company which is a personal holding company (as defined in section 542) or which fails to comply for the taxable year with regulations prescribed by the Secretary for the purpose of ascertaining the actual ownership of its stock, such tax shall be computed at the highest rate of tax specified in section 11 (b).
(2) Investment company taxable income
The investment company taxable income shall be the taxable income of the regulated investment company adjusted as follows:
The investment company taxable income shall be the taxable income of the regulated investment company adjusted as follows:
(A) There shall be excluded the amount of the net capital gain, if any.
(B) The net operating loss deduction provided in section 172 shall not be allowed.
(C) The deductions for corporations provided in part VIII (except section 248) in subchapter B (section 241 and following, relating to the deduction for dividends received, etc.) shall not be allowed.
(D) the[1] deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to capital gain dividends and exempt-interest dividends.
(3) Capital gains
(A) Imposition of tax
There is hereby imposed for each taxable year in the case of every regulated investment company a tax, determined as provided in section 1201 (a), on the excess, if any, of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.
There is hereby imposed for each taxable year in the case of every regulated investment company a tax, determined as provided in section 1201 (a), on the excess, if any, of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.
(B) Treatment of capital gain dividends by shareholders
A capital gain dividend shall be treated by the shareholders as a gain from the sale or exchange of a capital asset held for more than 1 year.
A capital gain dividend shall be treated by the shareholders as a gain from the sale or exchange of a capital asset held for more than 1 year.
(C) Definition of capital gain dividend
For purposes of this part, a capital gain dividend is any dividend, or part thereof, which is designated by the company as a capital gain dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year; except that, if there is an increase in the excess described in subparagraph (A) of this paragraph for such year which results from a determination (as defined in section 860 (e)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination. If the aggregate amount so designated with respect to a taxable year of the company (including capital gains dividends paid after the close of the taxable year described in section 855) is greater than the net capital gain of the taxable year, the portion of each distribution which shall be a capital gain dividend shall be only that proportion of the amount so designated which such net capital gain bears to the aggregate amount so designated. For purposes of this subparagraph, the amount of the net capital gain for a taxable year (to which an election under section 4982 (e)(4) does not apply) shall be determined without regard to any net capital loss or net long-term capital loss attributable to transactions after October 31 of such year, and any such net capital loss or net long-term capital loss shall be treated as arising on the 1st day of the next taxable year. To the extent provided in regulations, the preceding sentence shall apply also for purposes of computing the taxable income of the regulated investment company.
For purposes of this part, a capital gain dividend is any dividend, or part thereof, which is designated by the company as a capital gain dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year; except that, if there is an increase in the excess described in subparagraph (A) of this paragraph for such year which results from a determination (as defined in section 860 (e)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination. If the aggregate amount so designated with respect to a taxable year of the company (including capital gains dividends paid after the close of the taxable year described in section 855) is greater than the net capital gain of the taxable year, the portion of each distribution which shall be a capital gain dividend shall be only that proportion of the amount so designated which such net capital gain bears to the aggregate amount so designated. For purposes of this subparagraph, the amount of the net capital gain for a taxable year (to which an election under section 4982 (e)(4) does not apply) shall be determined without regard to any net capital loss or net long-term capital loss attributable to transactions after October 31 of such year, and any such net capital loss or net long-term capital loss shall be treated as arising on the 1st day of the next taxable year. To the extent provided in regulations, the preceding sentence shall apply also for purposes of computing the taxable income of the regulated investment company.
(D) Treatment by shareholders of undistributed capital gains
(i) Every shareholder of a regulated investment company at the close of the companys taxable year shall include, in computing his long-term capital gains in his return for his taxable year in which the last day of the companys taxable year falls, such amount as the company shall designate in respect of such shares in a written notice mailed to its shareholders at any time prior to the expiration of 60 days after close of its taxable year, but the amount so includible by any shareholder shall not exceed that part of the amount subjected to tax in subparagraph (A) which he would have received if all of such amount had been distributed as capital gain dividends by the company to the holders of such shares at the close of its taxable year.
(ii) For purposes of this title, every such shareholder shall be deemed to have paid, for his taxable year under clause (i), the tax imposed by subparagraph (A) on the amounts required by this subparagraph to be included in respect of such shares in computing his long-term capital gains for that year; and such shareholder shall be allowed credit or refund, as the case may be, for the tax so deemed to have been paid by him.
(iii) The adjusted basis of such shares in the hands of the shareholder shall be increased, with respect to the amounts required by this subparagraph to be included in computing his long-term capital gains, by the difference between the amount of such includible gains and the tax deemed paid by such shareholder in respect of such shares under clause (ii).
(iv) In the event of such designation the tax imposed by subparagraph (A) shall be paid by the regulated investment company within 30 days after close of its taxable year.
(v) The earnings and profits of such regulated investment company, and the earnings and profits of any such shareholder which is a corporation, shall be appropriately adjusted in accordance with regulations prescribed by the Secretary.
(E) Certain distributions
In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897 (h)(1), the amount of such distribution which would be included in computing long-term capital gains for the shareholder under subparagraph (B) or (D) (without regard to this subparagraph)
In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897 (h)(1), the amount of such distribution which would be included in computing long-term capital gains for the shareholder under subparagraph (B) or (D) (without regard to this subparagraph)
(i) shall not be included in computing such shareholders long-term capital gains, and
(ii) shall be included in such shareholders gross income as a dividend from the regulated investment company.
(4) Loss on sale or exchange of stock held 6 months or less
(A) Loss attributable to capital gain dividend
If
If
(i) subparagraph (B) or (D) of paragraph (3) provides that any amount with respect to any share is to be treated as long-term capital gain, and
(ii) such share is held by the taxpayer for 6 months or less,
then any loss (to the extent not disallowed under subparagraph (B)) on the sale or exchange of such share shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss.
(B) Loss attributable to exempt-interest dividend
If
If
(i) a shareholder of a regulated investment company receives an exempt-interest dividend with respect to any share, and
(ii) such share is held by the taxpayer for 6 months or less,
then any loss on the sale or exchange of such share shall, to the extent of the amount of such exempt-interest dividend, be disallowed.
(C) Determination of holding periods
For purposes of this paragraph, in determining the period for which the taxpayer has held any share of stock
For purposes of this paragraph, in determining the period for which the taxpayer has held any share of stock
(ii) there shall not be taken into account any day which is more than 6 months after the date on which such share becomes ex-dividend.
(D) Losses incurred under a periodic liquidation plan
To the extent provided in regulations, subparagraphs (A) and (B) shall not apply to losses incurred on the sale or exchange of shares of stock in a regulated investment company pursuant to a plan which provides for the periodic liquidation of such shares.
To the extent provided in regulations, subparagraphs (A) and (B) shall not apply to losses incurred on the sale or exchange of shares of stock in a regulated investment company pursuant to a plan which provides for the periodic liquidation of such shares.
(E) Authority to shorten required holding period
In the case of a regulated investment company which regularly distributes at least 90 percent of its net tax-exempt interest, the Secretary may by regulations prescribe that subparagraph (B) (and subparagraph (C) to the extent it relates to subparagraph (B)) shall be applied on the basis of a holding period requirement shorter than 6 months; except that such shorter holding period requirement shall not be shorter than the greater of 31 days or the period between regular distributions of exempt-interest dividends.
In the case of a regulated investment company which regularly distributes at least 90 percent of its net tax-exempt interest, the Secretary may by regulations prescribe that subparagraph (B) (and subparagraph (C) to the extent it relates to subparagraph (B)) shall be applied on the basis of a holding period requirement shorter than 6 months; except that such shorter holding period requirement shall not be shorter than the greater of 31 days or the period between regular distributions of exempt-interest dividends.
(5) Exempt-interest dividends
If, at the close of each quarter of its taxable year, at least 50 percent of the value (as defined in section 851(c)(4)) of the total assets of the regulated investment company consists of obligations described in section 103 (a), such company shall be qualified to pay exempt-interest dividends, as defined herein, to its shareholders.
If, at the close of each quarter of its taxable year, at least 50 percent of the value (as defined in section 851(c)(4)) of the total assets of the regulated investment company consists of obligations described in section 103 (a), such company shall be qualified to pay exempt-interest dividends, as defined herein, to its shareholders.
(A) Definition
An exempt-interest dividend means any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company and designated by it as an exempt-interest dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year. If the aggregate amount so designated with respect to a taxable year of the company (including exempt-interest dividends paid after the close of the taxable year as described in section 855) is greater than the excess of
An exempt-interest dividend means any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company and designated by it as an exempt-interest dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year. If the aggregate amount so designated with respect to a taxable year of the company (including exempt-interest dividends paid after the close of the taxable year as described in section 855) is greater than the excess of
the portion of such distribution which shall constitute an exempt-interest dividend shall be only that proportion of the amount so designated as the amount of such excess for such taxable year bears to the amount so designated.
(B) Treatment of exempt-interest dividends by shareholders
An exempt-interest dividend shall be treated by the shareholders for all purposes of this subtitle as an item of interest excludable from gross income under section 103 (a). Such purposes include but are not limited to
An exempt-interest dividend shall be treated by the shareholders for all purposes of this subtitle as an item of interest excludable from gross income under section 103 (a). Such purposes include but are not limited to
(i) the determination of gross income and taxable income,
(ii) the determination of distributable net income under subchapter J,
(iii) the allowance of, or calculation of the amount of, any credit or deduction, and
(iv) the determination of the basis in the hands of any shareholder of any share of stock of the company.
(6) Section 311 (b) not to apply to certain distributions
Section 311 (b) shall not apply to any distribution by a regulated investment company to which this part applies, if such distribution is in redemption of its stock upon the demand of the shareholder.
Section 311 (b) shall not apply to any distribution by a regulated investment company to which this part applies, if such distribution is in redemption of its stock upon the demand of the shareholder.
(7) Time certain dividends taken into account
For purposes of this title, any dividend declared by a regulated investment company in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed
For purposes of this title, any dividend declared by a regulated investment company in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed
(A) to have been received by each shareholder on December 31 of such calendar year, and
(B) to have been paid by such company on December 31 of such calendar year (or, if earlier, as provided in section 855).
The preceding sentence shall apply only if such dividend is actually paid by the company during January of the following calendar year.
(8) Special rule for treatment of certain foreign currency losses
To the extent provided in regulations, the taxable income of a regulated investment company (other than a company to which an election under section 4982 (e)(4) applies) shall be computed without regard to any net foreign currency loss attributable to transactions after October 31 of such year, and any such net foreign currency loss shall be treated as arising on the 1st day of the following taxable year.
To the extent provided in regulations, the taxable income of a regulated investment company (other than a company to which an election under section 4982 (e)(4) applies) shall be computed without regard to any net foreign currency loss attributable to transactions after October 31 of such year, and any such net foreign currency loss shall be treated as arising on the 1st day of the following taxable year.
(9) Dividends treated as received by company on ex-dividend date
For purposes of this title, if a regulated investment company is the holder of record of any share of stock on the record date for any dividend payable with respect to such stock, such dividend shall be included in gross income by such company as of the later of
For purposes of this title, if a regulated investment company is the holder of record of any share of stock on the record date for any dividend payable with respect to such stock, such dividend shall be included in gross income by such company as of the later of
(A) the date such share became ex-dividend with respect to such dividend, or
(B) the date such company acquired such share.
(10) Special rule for certain losses on stock in passive foreign investment company
To the extent provided in regulations, the taxable income of a regulated investment company (other than a company to which an election under section 4982 (e)(4) applies) shall be computed without regard to any net reduction in the value of any stock of a passive foreign investment company with respect to which an election under section 1296 (k) is in effect occurring after October 31 of the taxable year, and any such reduction shall be treated as occurring on the first day of the following taxable year.
To the extent provided in regulations, the taxable income of a regulated investment company (other than a company to which an election under section 4982 (e)(4) applies) shall be computed without regard to any net reduction in the value of any stock of a passive foreign investment company with respect to which an election under section 1296 (k) is in effect occurring after October 31 of the taxable year, and any such reduction shall be treated as occurring on the first day of the following taxable year.
(c) Earnings and profits
(1) In general
The earnings and profits of a regulated investment company for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. For purposes of this subsection, the term regulated investment company includes a domestic corporation which is a regulated investment company determined without regard to the requirements of subsection (a).
The earnings and profits of a regulated investment company for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. For purposes of this subsection, the term regulated investment company includes a domestic corporation which is a regulated investment company determined without regard to the requirements of subsection (a).
(2) Coordination with tax on undistributed income
For purposes of applying this chapter to distributions made by a regulated investment company with respect to any calendar year, the earnings and profits of such company shall be determined without regard to any net capital loss (or net foreign currency loss) attributable to transactions after October 31 of such year, without regard to any net reduction in the value of any stock of a passive foreign investment company with respect to which an election under section 1296 (k) is in effect occurring after October 31 of such year, and with such other adjustments as the Secretary may by regulations prescribe. The preceding sentence shall apply
For purposes of applying this chapter to distributions made by a regulated investment company with respect to any calendar year, the earnings and profits of such company shall be determined without regard to any net capital loss (or net foreign currency loss) attributable to transactions after October 31 of such year, without regard to any net reduction in the value of any stock of a passive foreign investment company with respect to which an election under section 1296 (k) is in effect occurring after October 31 of such year, and with such other adjustments as the Secretary may by regulations prescribe. The preceding sentence shall apply
(3) Distributions to meet requirements of subsection (a)(2)(B)
Any distribution which is made in order to comply with the requirements of subsection (a)(2)(B)
Any distribution which is made in order to comply with the requirements of subsection (a)(2)(B)
(A) shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from earnings and profits which, but for the distribution, would result in a failure to meet such requirements (and allocated to such earnings on a first-in, first-out basis), and
(B) to the extent treated under subparagraph (A) as made from accumulated earnings and profits, shall not be treated as a distribution for purposes of subsection (b)(2)(D) and section 855.
(d) Distributions in redemption of interests in unit investment trusts
In the case of a unit investment trust
In the case of a unit investment trust
(1) which is registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1 and following) and issues periodic payment plan certificates (as defined in such Act), and
(2) substantially all of the assets of which consist of securities issued by a management company (as defined in such Act),
section 562 (c) (relating to preferential dividends) shall not apply to a distribution by such trust to a holder of an interest in such trust in redemption of part or all of such interest, with respect to the capital gain net income of such trust attributable to such redemption.
(e) Procedures similar to deficiency dividend procedures made applicable
(1) In general
If
If
(A) there is a determination that the provisions of this part do not apply to an investment company for any taxable year (hereinafter in this subsection referred to as the non-RIC year), and
(B) such investment company meets the distribution requirements of paragraph (2) with respect to the non-RIC year,
for purposes of applying subsection (a)(2) to subsequent taxable years, the provisions of this part shall be treated as applying to such investment company for the non-RIC year. If the determination under subparagraph (A) is solely as a result of the failure to meet the requirements of subsection (a)(2), the preceding sentence shall also apply for purposes of applying subsection (a)(2) to the non-RIC year and the amount referred to in paragraph (2)(A)(i) shall be the portion of the accumulated earnings and profits which resulted in such failure.
(2) Distribution requirements
(A) In general
The distribution requirements of this paragraph are met with respect to any non-RIC year if, within the 90-day period beginning on the date of the determination (or within such longer period as the Secretary may permit), the investment company makes 1 or more qualified designated distributions and the amount of such distributions is not less than the excess of
The distribution requirements of this paragraph are met with respect to any non-RIC year if, within the 90-day period beginning on the date of the determination (or within such longer period as the Secretary may permit), the investment company makes 1 or more qualified designated distributions and the amount of such distributions is not less than the excess of
(i) the portion of the accumulated earnings and profits of the investment company (as of the date of the determination) which are attributable to the non-RIC year, over
(ii) any interest payable under paragraph (3).
(B) Qualified designated distribution
For purposes of this paragraph, the term qualified designated distribution means any distribution made by the investment company if
For purposes of this paragraph, the term qualified designated distribution means any distribution made by the investment company if
(i) section 301 applies to such distribution, and
(ii) such distribution is designated (at such time and in such manner as the Secretary shall by regulations prescribe) as being taken into account under this paragraph with respect to the non-RIC year.
(C) Effect on dividends paid deduction
Any qualified designated distribution shall not be included in the amount of dividends paid for purposes of computing the dividends paid deduction for any taxable year.
Any qualified designated distribution shall not be included in the amount of dividends paid for purposes of computing the dividends paid deduction for any taxable year.
(3) Interest charge
(A) In general
If paragraph (1) applies to any non-RIC year of an investment company, such investment company shall pay interest at the underpayment rate established under section 6621
If paragraph (1) applies to any non-RIC year of an investment company, such investment company shall pay interest at the underpayment rate established under section 6621
(i) on an amount equal to 50 percent of the amount referred to in paragraph (2)(A)(i),
(ii) for the period
(I) which begins on the last day prescribed for payment of the tax imposed for the non-RIC year (determined without regard to extensions), and
(II) which ends on the date the determination is made.
(B) Coordination with subtitle F
Any interest payable under subparagraph (A) may be assessed and collected at any time during the period during which any tax imposed for the taxable year in which the determination is made may be assessed and collected.
Any interest payable under subparagraph (A) may be assessed and collected at any time during the period during which any tax imposed for the taxable year in which the determination is made may be assessed and collected.
(4) Provision not to apply in the case of fraud
The provisions of this subsection shall not apply if the determination contains a finding that the failure to meet any requirement of this part was due to fraud with intent to evade tax.
The provisions of this subsection shall not apply if the determination contains a finding that the failure to meet any requirement of this part was due to fraud with intent to evade tax.
(5) Determination
For purposes of this subsection, the term determination has the meaning given to such term by section 860 (e). Such term also includes a determination by the investment company filed with the Secretary that the provisions of this part do not apply to the investment company for a taxable year.
For purposes of this subsection, the term determination has the meaning given to such term by section 860 (e). Such term also includes a determination by the investment company filed with the Secretary that the provisions of this part do not apply to the investment company for a taxable year.
(f) Treatment of certain load charges
(1) In general
If
If
(A) the taxpayer incurs a load charge in acquiring stock in a regulated investment company and, by reason of incurring such charge or making such acquisition, the taxpayer acquires a reinvestment right,
(B) such stock is disposed of before the 91st day after the date on which such stock was acquired, and
(C) the taxpayer subsequently acquires stock in such regulated investment company or in another regulated investment company and the otherwise applicable load charge is reduced by reason of the reinvestment right,
the load charge referred to in subparagraph (A) (to the extent it does not exceed the reduction referred to in subparagraph (C)) shall not be taken into account for purposes of determining the amount of gain or loss on the disposition referred to in subparagraph (B). To the extent such charge is not taken into account in determining the amount of such gain or loss, such charge shall be treated as incurred in connection with the acquisition referred to in subparagraph (C) (including for purposes of reapplying this paragraph).
(2) Definitions and special rules
For purposes of this subsection
For purposes of this subsection
(A) Load charge
The term load charge means any sales or similar charge incurred by a person in acquiring stock of a regulated investment company. Such term does not include any charge incurred by reason of the reinvestment of a dividend.
The term load charge means any sales or similar charge incurred by a person in acquiring stock of a regulated investment company. Such term does not include any charge incurred by reason of the reinvestment of a dividend.
(B) Reinvestment right
The term reinvestment right means any right to acquire stock of 1 or more regulated investment companies without the payment of a load charge or with the payment of a reduced charge.
The term reinvestment right means any right to acquire stock of 1 or more regulated investment companies without the payment of a load charge or with the payment of a reduced charge.
(C) Nonrecognition transactions
If the taxpayer acquires stock in a regulated investment company from another person in a transaction in which gain or loss is not recognized, the taxpayer shall succeed to the treatment of such other person under this subsection.
If the taxpayer acquires stock in a regulated investment company from another person in a transaction in which gain or loss is not recognized, the taxpayer shall succeed to the treatment of such other person under this subsection.
[1] So in original. Probably should be capitalized.