Regulated Investment Company Modernization Act of 2010

124 STAT. 3537 PUBLIC LAW 111–325—DEC. 22, 2010
Public Law 111–325
111th Congress
An Act
To amend the Internal Revenue Code of 1986 to modify certain rules applicable
to regulated investment companies, and for other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) S HORT TITLE.—This Act may be cited as the ‘‘Regulated
Investment Company Modernization Act of 2010’’.
(b) R EFERENCE .—Except as otherwise expressly provided, when-
ever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c) T
ABLE OF CONTENTS .—The table of contents for this Act
is as follows:
Sec. 1. Short title, etc.
TITLE I—CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT
COMPANIES
Sec. 101. Capital loss carryovers of regulated investment companies.
TITLE II—MODIFICATION OF GROSS INCOME AND ASSET TESTS OF
REGULATED INVESTMENT COMPANIES
Sec. 201. Savings provisions for failures of regulated investment companies to sat-
isfy gross income and asset tests.
TITLE III—MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER
DISTRIBUTIONS
Sec. 301. Modification of dividend designation requirements and allocation rules for
regulated investment companies.
Sec. 302. Earnings and profits of regulated investment companies. Sec. 303. Pass-thru of exempt-interest dividends and foreign tax credits in fund of
funds structure.
Sec. 304. Modification of rules for spillover dividends of regulated investment com-
panies.
Sec. 305. Return of capital distributions of regulated investment companies. Sec. 306. Distributions in redemption of stock of a regulated investment company. Sec. 307. Repeal of preferential dividend rule for publicly offered regulated invest-
ment companies.
Sec. 308. Elective deferral of certain late-year losses of regulated investment com-
panies.
Sec. 309. Exception to holding period requirement for certain regularly declared ex-
empt-interest dividends.
TITLE IV—MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO
REGULATED INVESTMENT COMPANIES
Sec. 401. Excise tax exemption for certain regulated investment companies owned
by tax exempt entities. Regulated Investment Company Modernization Act of 2010. 26 USC 1 note. Dec. 22, 2010
[H.R. 4337]
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Sec. 402. Deferral of certain gains and losses of regulated investment companies for
excise tax purposes.
Sec. 403. Distributed amount for excise tax purposes determined on basis of taxes
paid by regulated investment company.
Sec. 404. Increase in required distribution of capital gain net income.
TITLE V—OTHER PROVISIONS
Sec. 501. Repeal of assessable penalty with respect to liability for tax of regulated
investment companies.
Sec. 502. Modification of sales load basis deferral rule for regulated investment
companies.
TITLE I—CAPITAL LOSS CARRYOVERS
OF REGULATED INVESTMENT COMPA-NIES
SEC. 101. CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT
COMPANIES.
(a) I NGENERAL .—Subsection (a) of section 1212 is amended
by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
‘‘(3) R
EGULATED INVESTMENT COMPANIES .—
‘‘(A) I N GENERAL .—If a regulated investment company
has a net capital loss for any taxable year—
‘‘(i) paragraph (1) shall not apply to such loss, ‘‘(ii) the excess of the net short-term capital loss
over the net long-term capital gain for such year shall be a short-term capital loss arising on the first day of the next taxable year, and
‘‘(iii) the excess of the net long-term capital loss
over the net short-term capital gain for such year shall be a long-term capital loss arising on the first day of the next taxable year. ‘‘(B) C
OORDINATION WITH GENERAL RULE .—If a net cap-
ital loss to which paragraph (1) applies is carried over to a taxable year of a regulated investment company—
‘‘(i) L
OSSES TO WHICH THIS PARAGRAPH APPLIES .—
Clauses (ii) and (iii) of subparagraph (A) shall be applied without regard to any amount treated as a short-term capital loss under paragraph (1).
‘‘(ii) L
OSSES TO WHICH GENERAL RULE APPLIES .—
Paragraph (1) shall be applied by substituting ‘net capital loss for the loss year or any taxable year there-after (other than a net capital loss to which paragraph (3)(A) applies)’ for ‘net capital loss for the loss year or any taxable year thereafter’.’’.
(b) C
ONFORMING AMENDMENTS .—
(1) Subparagraph (C) of section 1212(a)(1) is amended to
read as follows:
‘‘(C) a capital loss carryover to each of the 10 taxable
years succeeding the loss year, but only to the extent such loss is attributable to a foreign expropriation loss,’’. (2) Paragraph (10) of section 1222 is amended by striking
‘‘section 1212’’ and inserting ‘‘section 1212(a)(1)’’. (c) E
FFECTIVE DATE.—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall apply to net capital 26 USC 1212 note. Applicability. 26 USC 1212.
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losses for taxable years beginning after the date of the enact-
ment of this Act.
(2) C OORDINATION RULES .—Subparagraph (B) of section
1212(a)(3) of the Internal Revenue Code of 1986, as added by this section, shall apply to taxable years beginning after the date of the enactment of this Act.
TITLE II—MODIFICATION OF GROSS IN-
COME AND ASSET TESTS OF REGU-LATED INVESTMENT COMPANIES
SEC. 201. SAVINGS PROVISIONS FOR FAILURES OF REGULATED
INVESTMENT COMPANIES TO SATISFY GROSS INCOME AND ASSET TESTS.
(a) A SSET TEST.—Subsection (d) of section 851 is amended—
(1) by striking ‘‘A corporation which meets’’ and inserting
the following:
‘‘(1) I N GENERAL .—A corporation which meets’’, and
(2) by adding at the end the following new paragraph: ‘‘(2) S
PECIAL RULES REGARDING FAILURE TO SATISFY
REQUIREMENTS .—If paragraph (1) does not preserve a corpora-
tion’s status as a regulated investment company for any par-ticular quarter—
‘‘(A) I
N GENERAL .—A corporation that fails to meet
the requirements of subsection (b)(3) (other than a failure
described in subparagraph (B)(i)) for such quarter shall nevertheless be considered to have satisfied the require-ments of such subsection for such quarter if—
‘‘(i) following the corporation’s identification of the
failure to satisfy the requirements of such subsection for such quarter, a description of each asset that causes the corporation to fail to satisfy the requirements of such subsection at the close of such quarter is set forth in a schedule for such quarter filed in the manner provided by the Secretary,
‘‘(ii) the failure to meet the requirements of such
subsection for such quarter is due to reasonable cause and not due to willful neglect, and
‘‘(iii)(I) the corporation disposes of the assets set
forth on the schedule specified in clause (i) within 6 months after the last day of the quarter in which the corporation’s identification of the failure to satisfy the requirements of such subsection occurred or such other time period prescribed by the Secretary and in the manner prescribed by the Secretary, or
‘‘(II) the requirements of such subsection are other-
wise met within the time period specified in subclause (I). ‘‘(B) R
ULE FOR CERTAIN DE MINIMIS FAILURES .—A cor-
poration that fails to meet the requirements of subsection (b)(3) for such quarter shall nevertheless be considered to have satisfied the requirements of such subsection for such quarter if— Deadline. 26 USC 851. Applicability.
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‘‘(i) such failure is due to the ownership of assets
the total value of which does not exceed the lesser of—
‘‘(I) 1 percent of the total value of the corpora-
tion’s assets at the end of the quarter for which such measurement is done, or
‘‘(II) $10,000,000, and
‘‘(ii)(I) the corporation, following the identification
of such failure, disposes of assets in order to meet the requirements of such subsection within 6 months after the last day of the quarter in which the corpora-tion’s identification of the failure to satisfy the require-ments of such subsection occurred or such other time period prescribed by the Secretary and in the manner prescribed by the Secretary, or
‘‘(II) the requirements of such subsection are other-
wise met within the time period specified in subclause (I). ‘‘(C) T
AX.—
‘‘(i) T AX IMPOSED .—If subparagraph (A) applies to
a corporation for any quarter, there is hereby imposed on such corporation a tax in an amount equal to the greater of—
‘‘(I) $50,000, or ‘‘(II) the amount determined (pursuant to regu-
lations promulgated by the Secretary) by multi-plying the net income generated by the assets described in the schedule specified in subpara-graph (A)(i) for the period specified in clause (ii) by the highest rate of tax specified in section 11. ‘‘(ii) P
ERIOD .—For purposes of clause (i)(II), the
period described in this clause is the period beginning on the first date that the failure to satisfy the require-ments of subsection (b)(3) occurs as a result of the ownership of such assets and ending on the earlier of the date on which the corporation disposes of such assets or the end of the first quarter when there is no longer a failure to satisfy such subsection.
‘‘(iii) A
DMINISTRATIVE PROVISIONS .—For purposes
of subtitle F, a tax imposed by this subparagraph shall be treated as an excise tax with respect to which the deficiency procedures of such subtitle apply.’’.
(b) G
ROSS INCOME TEST.—Section 851 is amended by adding
at the end the following new subsection:
‘‘(i) F AILURE TOSATISFY GROSS INCOME TEST.—
‘‘(1) D ISCLOSURE REQUIREMENT .—A corporation that fails
to meet the requirement of paragraph (2) of subsection (b) for any taxable year shall nevertheless be considered to have satisfied the requirement of such paragraph for such taxable year if—
‘‘(A) following the corporation’s identification of the
failure to meet such requirement for such taxable year, a description of each item of its gross income described in such paragraph is set forth in a schedule for such taxable year filed in the manner provided by the Secretary, and 26 USC 851. Deadline.
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‘‘(B) the failure to meet such requirement is due to
reasonable cause and not due to willful neglect. ‘‘(2) I
MPOSITION OF TAX ON FAILURES .—If paragraph (1)
applies to a regulated investment company for any taxable year, there is hereby imposed on such company a tax in an
amount equal to the excess of—
‘‘(A) the gross income of such company which is not
derived from sources referred to in subsection (b)(2), over
‘‘(B)
1⁄9of the gross income of such company which
is derived from such sources.’’.
(c) D EDUCTION OF TAXES PAID FROM INVESTMENT COMPANY
TAXABLE INCOME .—Paragraph (2) of section 852(b) is amended by
adding at the end the following new subparagraph:
‘‘(G) There shall be deducted an amount equal to the
tax imposed by subsections (d)(2) and (i) of section 851 for the taxable year.’’.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years with respect to which the due date (determined with regard to any extensions) of the return of tax for such taxable year is after the date of the enactment of this Act.
TITLE III—MODIFICATION OF RULES
RELATED TO DIVIDENDS AND OTHER DISTRIBUTIONS
SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION REQUIREMENTS
AND ALLOCATION RULES FOR REGULATED INVESTMENT COMPANIES.
(a) C APITAL GAINDIVIDENDS .—
(1) I N GENERAL .—Subparagraph (C) of section 852(b)(3)
is amended to read as follows:
‘‘(C) D EFINITION OF CAPITAL GAIN DIVIDEND .—For pur-
poses of this part—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), a capital gain dividend is any dividend, or part thereof, which is reported by the company as a capital gain dividend in written statements furnished to its shareholders.
‘‘(ii) E
XCESS REPORTED AMOUNTS .—If the aggregate
reported amount with respect to the company for any taxable year exceeds the net capital gain of the com-pany for such taxable year, a capital gain dividend is the excess of—
‘‘(I) the reported capital gain dividend amount,
over
‘‘(II) the excess reported amount which is allo-
cable to such reported capital gain dividend amount. ‘‘(iii) A
LLOCATION OF EXCESS REPORTED AMOUNT .—
‘‘(I) I N GENERAL .—Except as provided in sub-
clause (II), the excess reported amount (if any) which is allocable to the reported capital gain divi-dend amount is that portion of the excess reported amount which bears the same ratio to the excess 26 USC 851 note. 26 USC 852.
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reported amount as the reported capital gain divi-
dend amount bears to the aggregate reported amount.
‘‘(II) S
PECIAL RULE FOR NONCALENDAR YEAR
TAXPAYERS .—In the case of any taxable year which
does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such tax-able year, subclause (I) shall be applied by sub-stituting ‘post-December reported amount’ for ‘aggregate reported amount’ and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year. ‘‘(iv) D
EFINITIONS .—For purposes of this subpara-
graph—
‘‘(I) R EPORTED CAPITAL GAIN DIVIDEND
AMOUNT .—The term ‘reported capital gain dividend
amount’ means the amount reported to its share-holders under clause (i) as a capital gain dividend.
‘‘(II) E
XCESS REPORTED AMOUNT .—The term
‘excess reported amount’ means the excess of the aggregate reported amount over the net capital gain of the company for the taxable year.
‘‘(III) A
GGREGATE REPORTED AMOUNT .—The
term ‘aggregate reported amount’ means the aggre-gate amount of dividends reported by the company under clause (i) as capital gain dividends for the taxable year (including capital gain dividends paid after the close of the taxable year described in section 855).
‘‘(IV) P
OST-DECEMBER REPORTED AMOUNT .—
The term ‘post-December reported amount’ means the aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year. ‘‘(v) A
DJUSTMENT FOR DETERMINATIONS .—If there
is an increase in the excess described in subparagraph (A) for the taxable year which results from a deter-mination (as defined in section 860(e)), the company may, subject to the limitations of this subparagraph, increase the amount of capital gain dividends reported under clause (i).
‘‘(vi) S
PECIAL RULE FOR LOSSES LATE IN THE CAL –
ENDAR YEAR .—For special rule for certain losses after
October 31, see paragraph (8).’’.
(2) C ONFORMING AMENDMENT .—Subparagraph (B) of section
860(f)(2) is amended by inserting ‘‘or reported (as the case may be)’’ after ‘‘designated’’. (b) E
XEMPT -INTEREST DIVIDENDS .—Subparagraph (A) of section
852(b)(5) is amended to read as follows:
‘‘(A) D EFINITION OF EXEMPT -INTEREST DIVIDEND .—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), an exempt-interest dividend is any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company and reported by the company as an exempt-interest dividend in written statements furnished to its shareholders. 26 USC 860. Applicability.
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‘‘(ii) E XCESS REPORTED AMOUNTS .—If the aggregate
reported amount with respect to the company for any taxable year exceeds the exempt interest of the com-pany for such taxable year, an exempt-interest divi-dend is the excess of—
‘‘(I) the reported exempt-interest dividend
amount, over
‘‘(II) the excess reported amount which is allo-
cable to such reported exempt-interest dividend amount. ‘‘(iii) A
LLOCATION OF EXCESS REPORTED AMOUNT .—
‘‘(I) I N GENERAL .—Except as provided in sub-
clause (II), the excess reported amount (if any) which is allocable to the reported exempt-interest dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported exempt-interest dividend amount bears to the aggregate reported amount.
‘‘(II) S
PECIAL RULE FOR NONCALENDAR YEAR
TAXPAYERS .—In the case of any taxable year which
does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such tax-able year, subclause (I) shall be applied by sub-stituting ‘post-December reported amount’ for ‘aggregate reported amount’ and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year. ‘‘(iv) D
EFINITIONS .—For purposes of this subpara-
graph—
‘‘(I) R EPORTED EXEMPT -INTEREST DIVIDEND
AMOUNT .—The term ‘reported exempt-interest divi-
dend amount’ means the amount reported to its shareholders under clause (i) as an exempt-interest dividend.
‘‘(II) E
XCESS REPORTED AMOUNT .—The term
‘excess reported amount’ means the excess of the aggregate reported amount over the exempt interest of the company for the taxable year.
‘‘(III) A
GGREGATE REPORTED AMOUNT .—The
term ‘aggregate reported amount’ means the aggre-gate amount of dividends reported by the company under clause (i) as exempt-interest dividends for the taxable year (including exempt-interest divi-dends paid after the close of the taxable year
described in section 855).
‘‘(IV) P
OST-DECEMBER REPORTED AMOUNT .—
The term ‘post-December reported amount’ means the aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year.
‘‘(V) E
XEMPT INTEREST .—The term ‘exempt
interest’ means, with respect to any regulated investment company, the excess of the amount of interest excludable from gross income under Applicability.
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section 103(a) over the amounts disallowed as
deductions under sections 265 and 171(a)(2).’’.
(c) F OREIGN TAXCREDITS .—
(1) I N GENERAL .—Subsection (c) of section 853 is amended—
(A) by striking ‘‘so designated by the company in a
written notice mailed to its shareholders not later than 60 days after the close of the taxable year’’ and inserting ‘‘so reported by the company in a written statement fur-nished to such shareholder’’, and
(B) by striking ‘‘N
OTICE ’’ in the heading and inserting
‘‘STATEMENTS ’’.
(2) C ONFORMING AMENDMENTS .—Subsection (d) of section
853 is amended—
(A) by striking ‘‘and the notice to shareholders required
by subsection (c)’’ in the text thereof, and
(B) by striking ‘‘ AND NOTIFYING SHAREHOLDERS ’’ in
the heading thereof.
(d) C REDITS FOR TAXCREDIT BONDS .—
(1) I N GENERAL .—Subsection (c) of section 853A is
amended—
(A) by striking ‘‘so designated by the regulated invest-
ment company in a written notice mailed to its share-holders not later than 60 days after the close of its taxable year’’ and inserting ‘‘so reported by the regulated invest-ment company in a written statement furnished to such shareholder’’, and
(B) by striking ‘‘N
OTICE ’’ in the heading and inserting
‘‘STATEMENTS ’’.
(2) C ONFORMING AMENDMENTS .—Subsection (d) of section
853A is amended—
(A) by striking ‘‘and the notice to shareholders required
by subsection (c)’’ in the text thereof, and
(B) by striking ‘‘ AND NOTIFYING SHAREHOLDERS ’’ in
the heading thereof.
(e) D IVIDEND RECEIVED DEDUCTION , ETC.—
(1) I N GENERAL .—Paragraph (1) of section 854(b) is
amended—
(A) by striking ‘‘designated under this subparagraph
by the regulated investment company’’ in subparagraph (A) and inserting ‘‘reported by the regulated investment company as eligible for such deduction in written state-ments furnished to its shareholders’’,
(B) by striking ‘‘designated by the regulated investment
company’’ in subparagraph (B)(i) and inserting ‘‘reported by the regulated investment company as qualified dividend income in written statements furnished to its share-
holders’’,
(C) by striking ‘‘designated’’ in subparagraph (C)(i) and
inserting ‘‘reported’’, and
(D) by striking ‘‘designated’’ in subparagraph (C)(ii)
and inserting ‘‘reported’’. (2) C
ONFORMING AMENDMENTS .—Subsection (b) of section
854 is amended by striking paragraph (2) and by redesignating paragraphs (3), (4), and (5), as paragraphs (2), (3), and (4), respectively. (f) D
IVIDENDS PAID TO CERTAIN FOREIGN PERSONS .— 26 USC 853.
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(1) I NTEREST -RELATED DIVIDENDS .—Subparagraph (C) of
section 871(k)(1) is amended by striking all that precedes ‘‘any taxable year of the company beginning’’ and inserting the fol-lowing:
‘‘(C) I
NTEREST -RELATED DIVIDEND .—For purposes of
this paragraph—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), an interest related dividend is any dividend, or part thereof, which is reported by the company as an interest related dividend in written statements fur-nished to its shareholders.
‘‘(ii) E
XCESS REPORTED AMOUNTS .—If the aggregate
reported amount with respect to the company for any taxable year exceeds the qualified net interest income of the company for such taxable year, an interest related dividend is the excess of—
‘‘(I) the reported interest related dividend
amount, over
‘‘(II) the excess reported amount which is allo-
cable to such reported interest related dividend amount. ‘‘(iii) A
LLOCATION OF EXCESS REPORTED AMOUNT .—
‘‘(I) I N GENERAL .—Except as provided in sub-
clause (II), the excess reported amount (if any) which is allocable to the reported interest related dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported interest related dividend amount bears to the aggregate reported amount.
‘‘(II) S
PECIAL RULE FOR NONCALENDAR YEAR
TAXPAYERS .—In the case of any taxable year which
does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such tax-able year, subclause (I) shall be applied by sub-stituting ‘post-December reported amount’ for ‘aggregate reported amount’ and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year. ‘‘(iv) D
EFINITIONS .—For purposes of this subpara-
graph—
‘‘(I) R EPORTED INTEREST RELATED DIVIDEND
AMOUNT .—The term ‘reported interest related divi-
dend amount’ means the amount reported to its shareholders under clause (i) as an interest related
dividend.
‘‘(II) E
XCESS REPORTED AMOUNT .—The term
‘excess reported amount’ means the excess of the aggregate reported amount over the qualified net interest income of the company for the taxable year.
‘‘(III) A
GGREGATE REPORTED AMOUNT .—The
term ‘aggregate reported amount’ means the aggre-gate amount of dividends reported by the company under clause (i) as interest related dividends for Applicability. 26 USC 871.
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the taxable year (including interest related divi-
dends paid after the close of the taxable year described in section 855).
‘‘(IV) P
OST-DECEMBER REPORTED AMOUNT .—
The term ‘post-December reported amount’ means the aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year. ‘‘(v) T
ERMINATION .—The term ‘interest related divi-
dend’ shall not include any dividend with respect to’’.
(2) S HORT -TERM CAPITAL GAIN DIVIDENDS .—Subparagraph
(C) of section 871(k)(2) is amended by striking all that precedes ‘‘any taxable year of the company beginning’’ and inserting the following:
‘‘(C) S
HORT -TERM CAPITAL GAIN DIVIDEND .—For pur-
poses of this paragraph—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), the term ‘short-term capital gain dividend’ means any dividend, or part thereof, which is reported by the company as a short-term capital gain dividend in written statements furnished to its shareholders.
‘‘(ii) E
XCESS REPORTED AMOUNTS .—If the aggregate
reported amount with respect to the company for any taxable year exceeds the qualified short-term gain of the company for such taxable year, the term ‘short- term capital gain dividend’ means the excess of—
‘‘(I) the reported short-term capital gain divi-
dend amount, over
‘‘(II) the excess reported amount which is allo-
cable to such reported short-term capital gain divi-dend amount. ‘‘(iii) A
LLOCATION OF EXCESS REPORTED AMOUNT .—
‘‘(I) I N GENERAL .—Except as provided in sub-
clause (II), the excess reported amount (if any) which is allocable to the reported short-term cap-ital gain dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported short-term capital gain dividend amount bears to the aggregate reported amount.
‘‘(II) S
PECIAL RULE FOR NONCALENDAR YEAR
TAXPAYERS .—In the case of any taxable year which
does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such tax-able year, subclause (I) shall be applied by sub-stituting ‘post-December reported amount’ for ‘aggregate reported amount’ and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year. ‘‘(iv) D
EFINITIONS .—For purposes of this subpara-
graph—
‘‘(I) R EPORTED SHORT -TERM CAPITAL GAIN DIVI –
DEND AMOUNT .—The term ‘reported short-term
capital gain dividend amount’ means the amount reported to its shareholders under clause (i) as a short-term capital gain dividend. Applicability. Definitions. 26 USC 871.
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‘‘(II) E XCESS REPORTED AMOUNT .—The term
‘excess reported amount’ means the excess of the aggregate reported amount over the qualified short-term gain of the company for the taxable year.
‘‘(III) A
GGREGATE REPORTED AMOUNT .—The
term ‘aggregate reported amount’ means the aggre-gate amount of dividends reported by the company under clause (i) as short-term capital gain divi-dends for the taxable year (including short-term capital gain dividends paid after the close of the taxable year described in section 855).
‘‘(IV) P
OST-DECEMBER REPORTED AMOUNT .—
The term ‘post-December reported amount’ means the aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year. ‘‘(v) T
ERMINATION .—The term ‘short-term capital
gain dividend’ shall not include any dividend with respect to’’.
(g) C
ONFORMING AMENDMENTS .—Section 855 is amended—
(1) by striking subsection (c) and redesignating subsection
(d) as subsection (c), and
(2) by striking ‘‘, (c) and (d)’’ in subsection (a) and inserting
‘‘and (c)’’. (h) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
(i) A
PPLICATION OF JGTRRA S UNSET .—Section 303 of the Jobs
and Growth Tax Relief Reconciliation Act of 2003 shall apply to the amendments made by subparagraphs (B) and (D) of subsection (e)(1) to the same extent and in the same manner as section 303 of such Act applies to the amendments made by section 302 of such Act.
SEC. 302. EARNINGS AND PROFITS OF REGULATED INVESTMENT
COMPANIES.
(a) I NGENERAL .—Paragraph (1) of section 852(c) is amended
to read as follows:
‘‘(1) T REATMENT OF NONDEDUCTIBLE ITEMS .—
‘‘(A) N ET CAPITAL LOSS .—If a regulated investment
company has a net capital loss for any taxable year—
‘‘(i) such net capital loss shall not be taken into
account for purposes of determining the company’s earnings and profits, and
‘‘(ii) any capital loss arising on the first day of
the next taxable year by reason of clause (ii) or (iii) of section 1212(a)(3)(A) shall be treated as so arising for purposes of determining earnings and profits. ‘‘(B) O
THER NONDEDUCTIBLE ITEMS .—
‘‘(i) I N 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 (other than by reason of section 265 or 171(a)(2)) in computing its taxable income for such taxable year. 26 USC 854 note. 26 USC 852 note. 26 USC 855.
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‘‘(ii) C OORDINATION WITH TREATMENT OF NET CAP –
ITAL LOSSES .—Clause (i) shall not apply to a net capital
loss to which subparagraph (A) applies.’’.
(b) C ONFORMING AMENDMENTS .—
(1) Subsection (c) of section 852 is amended by adding
at the end the following new paragraph:
‘‘(4) R EGULATED INVESTMENT COMPANY .—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) Paragraphs (1)(A) and (2)(A) of section 871(k) are each
amended by inserting ‘‘which meets the requirements of section 852(a) for the taxable year with respect to which the dividend is paid’’ before the period at the end. (c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS AND FOREIGN
TAX CREDITS IN FUND OF FUNDS STRUCTURE.
(a) I NGENERAL .—Section 852 is amended by adding at the
end the following new subsection:
‘‘(g) S PECIAL RULES FOR FUND OF FUNDS .—
‘‘(1) I N GENERAL .—In the case of a qualified fund of funds—
‘‘(A) such fund shall be qualified to pay exempt-interest
dividends to its shareholders without regard to whether such fund satisfies the requirements of the first sentence of subsection (b)(5), and
‘‘(B) such fund may elect the application of section
853 (relating to foreign tax credit allowed to shareholders) without regard to the requirement of subsection (a)(1) thereof. ‘‘(2) Q
UALIFIED FUND OF FUNDS .—For purposes of this sub-
section, the term ‘qualified fund of funds’ means a regulated investment company if (at the close of each quarter of the taxable year) at least 50 percent of the value of its total assets is represented by interests in other regulated investment companies.’’. (b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVIDENDS OF
REGULATED INVESTMENT COMPANIES.
(a) D EADLINE FOR DECLARATION OF DIVIDEND .—Paragraph (1)
of section 855(a) is amended to read as follows:
‘‘(1) declares a dividend before the later of—
‘‘(A) the 15th day of the 9th month following the close
of the taxable year, or
‘‘(B) in the case of an extension of time for filing
the company’s return for the taxable year, the due date for filing such return taking into account such extension, and’’.
(b) D
EADLINE FOR DISTRIBUTION OF DIVIDEND .—Paragraph (2)
of section 855(a) is amended by striking ‘‘the first regular dividend payment’’ and inserting ‘‘the first dividend payment of the same type of dividend’’. 26 USC 852 note. 26 USC 852 note. 26 USC 852.
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(c) S HORT -TERM CAPITAL GAIN.—Subsection (a) of section 855
is amended by adding at the end the following: ‘‘For purposes of paragraph (2), a dividend attributable to any short-term capital gain with respect to which a notice is required under the Investment Company Act of 1940 shall be treated as the same type of dividend as a capital gain dividend.’’.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to distributions in taxable years beginning after the date of the enactment of this Act.
SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGULATED
INVESTMENT COMPANIES.
(a) I NGENERAL .—Subsection (b) of section 316 is amended
by adding at the end the following new paragraph:
‘‘(4) C ERTAIN DISTRIBUTIONS BY REGULATED INVESTMENT
COMPANIES IN EXCESS OF EARNINGS AND PROFITS .—In the case
of a regulated investment company that has a taxable year other than a calendar year, if the distributions by the company with respect to any class of stock of such company for the taxable year exceed the company’s current and accumulated earnings and profits which may be used for the payment of dividends on such class of stock, the company’s current earnings and profits shall, for purposes of subsection (a), be allocated first to distributions with respect to such class of stock made during the portion of the taxable year which precedes January 1.’’. (b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to distributions made in taxable years beginning after the date of the enactment of this Act.
SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A REGULATED
INVESTMENT COMPANY.
(a) R EDEMPTIONS TREATED AS EXCHANGES .—
(1) I N GENERAL .—Subsection (b) of section 302 is amended
by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:
‘‘(5) R
EDEMPTIONS BY CERTAIN REGULATED INVESTMENT
COMPANIES .—Except to the extent provided in regulations pre-
scribed by the Secretary, subsection (a) shall apply to any distribution in redemption of stock of a publicly offered regu-lated investment company (within the meaning of section 67(c)(2)(B)) if—
‘‘(A) such redemption is upon the demand of the stock-
holder, and
‘‘(B) such company issues only stock which is redeem-
able upon the demand of the stockholder.’’. (2) C
ONFORMING AMENDMENT .—Subsection (a) of section
302 is amended by striking ‘‘or (4)’’ and inserting ‘‘(4), or (5)’’. (b) L
OSSES ON REDEMPTIONS NOTDISALLOWED FOR FUND-OF-
FUNDS REGULATED INVESTMENT COMPANIES .—Paragraph (3) of sec-
tion 267(f) is amended by adding at the end the following new subparagraph:
‘‘(D) R
EDEMPTIONS BY FUND -OF-FUNDS REGULATED
INVESTMENT COMPANIES .—Except to the extent provided
in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to any distribution in redemption of stock of a regulated investment company if— 26 USC 267 note. 26 USC 316 note. 26 USC 855 note. 26 USC 855.
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‘‘(i) such company issues only stock which is
redeemable upon the demand of the stockholder, and
‘‘(ii) such redemption is upon the demand of
another regulated investment company.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to distributions after the date of the enactment of this Act.
SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY
OFFERED REGULATED INVESTMENT COMPANIES.
(a) I NGENERAL .—Subsection (c) of section 562 is amended
by striking ‘‘The amount’’ and inserting ‘‘Except in the case of a publicly offered regulated investment company (as defined in section 67(c)(2)(B)), the amount’’.
(b) C
ONFORMING AMENDMENT .—Section 562(c) is amended by
inserting ‘‘(other than a publicly offered regulated investment com-pany (as so defined))’’ after ‘‘regulated investment company’’ in the second sentence thereof.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to distributions in taxable years beginning after the date of the enactment of this Act.
SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR LOSSES OF
REGULATED INVESTMENT COMPANIES.
(a) I NGENERAL .—Paragraph (8) of section 852(b) is amended
to read as follows:
‘‘(8) E LECTIVE DEFERRAL OF CERTAIN LATE -YEAR LOSSES .—
‘‘(A) I N GENERAL .—Except as otherwise provided by
the Secretary, a regulated investment company may elect for any taxable year to treat any portion of any qualified
late-year loss for such taxable year as arising on the first day of the following taxable year for purposes of this title.
‘‘(B) Q
UALIFIED LATE -YEAR LOSS .—For purposes of this
paragraph, the term ‘qualified late-year loss’ means—
‘‘(i) any post-October capital loss, and ‘‘(ii) any late-year ordinary loss.
‘‘(C) P
OST-OCTOBER CAPITAL LOSS .—For purposes of this
paragraph, the term ‘post-October capital loss’ means the greatest of—
‘‘(i) the net capital loss attributable to the portion
of the taxable year after October 31,
‘‘(ii) the net long-term capital loss attributable to
such portion of the taxable year, or
‘‘(iii) the net short-term capital loss attributable
to such portion of the taxable year. ‘‘(D) L
ATE-YEAR ORDINARY LOSS .—For purposes of this
paragraph, the term ‘late-year ordinary loss’ means the excess (if any) of—
‘‘(i) the sum of—
‘‘(I) the specified losses (as defined in section
4982(e)(5)(B)(ii)) attributable to the portion of the taxable year after October 31, plus
‘‘(II) the ordinary losses not described in sub-
clause (I) attributable to the portion of the taxable year after December 31, over ‘‘(ii) the sum of— 26 USC 562 note. 26 USC 267 note.
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‘‘(I) the specified gains (as defined in section
4982(e)(5)(B)(i)) attributable to the portion of the taxable year after October 31, plus
‘‘(II) the ordinary income not described in sub-
clause (I) attributable to the portion of the taxable year after December 31.
‘‘(E) S
PECIAL RULE FOR COMPANIES DETERMINING
REQUIRED CAPITAL GAIN DISTRIBUTIONS ON TAXABLE YEAR
BASIS .—In the case of a company to which an election
under section 4982(e)(4) applies—
‘‘(i) if such company’s taxable year ends with the
month of November, the amount of qualified late-year losses (if any) shall be computed without regard to any income, gain, or loss described in subparagraphs (C), (D)(i)(I), and (D)(ii)(I), and
‘‘(ii) if such company’s taxable year ends with the
month of December, subparagraph (A) shall not apply.’’.
(b) C
ONFORMING AMENDMENTS .—
(1) Subsection (b) of section 852 is amended by striking
paragraph (10).
(2) Paragraph (2) of section 852(c) is amended by striking
the first sentence and inserting the following: ‘‘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 with-out regard to any net capital loss attributable to the portion of the taxable year after October 31 and without regard to any late-year ordinary loss (as defined in subsection (b)(8)(D)).’’
(3) Subparagraph (D) of section 871(k)(2) is amended by
striking the last two sentences and inserting the following: ‘‘For purposes of this subparagraph, the net short-term capital gain of the regulated investment company shall be computed by treating any short-term capital gain dividend includible in gross income with respect to stock of another regulated investment company as a short-term capital gain.’’. (c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 309. EXCEPTION TO HOLDING PERIOD REQUIREMENT FOR CER-
TAIN REGULARLY DECLARED EXEMPT-INTEREST DIVI-DENDS.
(a) I NGENERAL .—Subparagraph (E) of section 852(b)(4) is
amended by striking all that precedes ‘‘In the case of a regulated investment company’’ and inserting the following:
‘‘(E) E
XCEPTION TO HOLDING PERIOD REQUIREMENT FOR
CERTAIN REGULARLY DECLARED EXEMPT -INTEREST DIVI –
DENDS .—
‘‘(i) D AILY DIVIDEND COMPANIES .—Except as other-
wise provided by regulations, subparagraph (B) shall not apply with respect to a regular dividend paid by a regulated investment company which declares exempt-interest dividends on a daily basis in an amount equal to at least 90 percent of its net tax- exempt interest and distributes such dividends on a monthly or more frequent basis. 26 USC 852 note. 26 USC 852.
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‘‘(ii) A UTHORITY TO SHORTEN REQUIRED HOLDING
PERIOD WITH RESPECT TO OTHER COMPANIES .—’’.
(b) C ONFORMING AMENDMENT .—Clause (ii) of section
852(b)(4)(E), as amended by subsection (a), is amended by inserting ‘‘(other than a company described in clause (i))’’ after ‘‘regulated
investment company’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to losses incurred on shares of stock for which the taxpayer’s holding period begins after the date of the enactment of this Act.
TITLE IV—MODIFICATIONS RELATED
TO EXCISE TAX APPLICABLE TO REG-ULATED INVESTMENT COMPANIES
SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGULATED INVEST-
MENT COMPANIES OWNED BY TAX EXEMPT ENTITIES.
(a) I NGENERAL .—Subsection (f) of section 4982 is amended—
(1) by striking ‘‘either’’ in the matter preceding paragraph
(1),
(2) by striking ‘‘or’’ at the end of paragraph (1), (3) by striking the period at the end of paragraph (2),
and
(4) by inserting after paragraph (2) the following new para-
graphs:
‘‘(3) any other tax-exempt entity whose ownership of bene-
ficial interests in the company would not preclude the applica-tion of section 817(h)(4), or
‘‘(4) another regulated investment company described in
this subsection.’’. (b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to calendar years beginning after the date of the enact-ment of this Act.
SEC. 402. DEFERRAL OF CERTAIN GAINS AND LOSSES OF REGULATED
INVESTMENT COMPANIES FOR EXCISE TAX PURPOSES.
(a) I NGENERAL .—Subsection (e) of section 4982 is amended
by striking paragraphs (5) and (6) and inserting the following new paragraphs:
‘‘(5) T
REATMENT OF SPECIFIED GAINS AND LOSSES AFTER
OCTOBER 31 OF CALENDAR YEAR .—
‘‘(A) I N GENERAL .—Any specified gain or specified loss
which (but for this paragraph) would be properly taken into account for the portion of the calendar year after October 31 shall be treated as arising on January 1 of the following calendar year.
‘‘(B) S
PECIFIED GAINS AND LOSSES .—For purposes of
this paragraph—
‘‘(i) S PECIFIED GAIN .—The term ‘specified gain’
means ordinary gain from the sale, exchange, or other disposition of property (including the termination of a position with respect to such property). Such term shall include any foreign currency gain attributable to a section 988 transaction (within the meaning of 26 USC 4982 note. 26 USC 852 note. 26 USC 852.
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section 988) and any amount includible in gross income
under section 1296(a)(1).
‘‘(ii) S PECIFIED LOSS .—The term ‘specified loss’
means ordinary loss from the sale, exchange, or other disposition of property (including the termination of a position with respect to such property). Such term shall include any foreign currency loss attributable to a section 988 transaction (within the meaning of section 988) and any amount allowable as a deduction under section 1296(a)(2). ‘‘(C) S
PECIAL RULE FOR COMPANIES ELECTING TO USE
THE TAXABLE YEAR .—In the case of any company making
an election under paragraph (4), subparagraph (A) shall be applied by substituting the last day of the company’s taxable year for October 31. ‘‘(6) T
REATMENT OF MARK TO MARKET GAIN .—
‘‘(A) I N GENERAL .—For purposes of determining a regu-
lated investment company’s ordinary income, notwith-standing paragraph (1)(C), each specified mark to market provision shall be applied as if such company’s taxable year ended on October 31. In the case of a company making an election under paragraph (4), the preceding sentence shall be applied by substituting the last day of the com-pany’s taxable year for October 31.
‘‘(B) S
PECIFIED MARK TO MARKET PROVISION .—For pur-
poses of this paragraph, the term ‘specified mark to market provision’ means sections 1256 and 1296 and any other provision of this title (or regulations thereunder) which treats property as disposed of on the last day of the taxable year. ‘‘(7) E
LECTIVE DEFERRAL OF CERTAIN ORDINARY LOSSES .—
Except as provided in regulations prescribed by the Secretary, in the case of a regulated investment company which has
a taxable year other than the calendar year—
‘‘(A) such company may elect to determine its ordinary
income for the calendar year without regard to any net ordinary loss (determined without regard to specified gains and losses taken into account under paragraph (5)) which is attributable to the portion of such calendar year which is after the beginning of the taxable year which begins in such calendar year, and
‘‘(B) any amount of net ordinary loss not taken into
account for a calendar year by reason of subparagraph (A) shall be treated as arising on the 1st day of the fol-lowing calendar year.’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to calendar years beginning after the date of the enact-ment of this Act.
SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PURPOSES DETER-
MINED ON BASIS OF TAXES PAID BY REGULATED INVEST-MENT COMPANY.
(a) I NGENERAL .—Subsection (c) of section 4982 is amended
by adding at the end the following new paragraph:
‘‘(4) S PECIAL RULE FOR ESTIMATED TAX PAYMENTS .— 26 USC 4982. 26 USC 4982
note.
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‘‘(A) I N GENERAL .—In the case of a regulated invest-
ment company which elects the application of this para-graph for any calendar year—
‘‘(i) the distributed amount with respect to such
company for such calendar year shall be increased by the amount on which qualified estimated tax pay-ments are made by such company during such calendar year, and
‘‘(ii) the distributed amount with respect to such
company for the following calendar year shall be reduced by the amount of such increase. ‘‘(B) Q
UALIFIED ESTIMATED TAX PAYMENTS .—For pur-
poses of this paragraph, the term ‘qualified estimated tax payments’ means, with respect to any calendar year, pay-ments of estimated tax of a tax described in paragraph (1)(B) for any taxable year which begins (but does not end) in such calendar year.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to calendar years beginning after the date of the enact-ment of this Act.
SEC. 404. INCREASE IN REQUIRED DISTRIBUTION OF CAPITAL GAIN
NET INCOME.
(a) I NGENERAL .—Subparagraph (B) of section 4982(b)(1) is
amended by striking ‘‘98 percent’’ and inserting ‘‘98.2 percent’’.
(b) E FFECTIVE DATE.—The amendments made by this section
shall apply to calendar years beginning after the date of the enact-ment of this Act.
TITLE V—OTHER PROVISIONS
SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RESPECT TO
LIABILITY FOR TAX OF REGULATED INVESTMENT COMPA-NIES.
(a) I NGENERAL .—Part I of subchapter B of chapter 68 is
amended by striking section 6697 (and by striking the item relating to such section in the table of sections of such part).
(b) C
ONFORMING AMENDMENT .—Section 860 is amended by
striking subsection (j).
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL RULE FOR
REGULATED INVESTMENT COMPANIES.
(a) I NGENERAL .—Subparagraph (C) of section 852(f)(1) is
amended by striking ‘‘subsequently acquires’’ and inserting ‘‘acquires, during the period beginning on the date of the disposition referred to in subparagraph (B) and ending on January 31 of the calendar year following the calendar year that includes the date of such disposition,’’. 26 USC 860 note. 26 USC 4982
note. 26 USC 4982. 26 USC 4982
note.
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LEGISLATIVE HISTORY—H.R. 4337:
CONGRESSIONAL RECORD, Vol. 156 (2010):
Sept. 28, considered and passed House. Dec. 8, considered and passed Senate, amended. Dec. 15, House concurred in Senate amendment. (b) E FFECTIVE DATE.—The amendment made by this section
shall apply to charges incurred in taxable years beginning after the date of the enactment of this Act.
Approved December 22, 2010. 26 USC 852 note.
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