U. S. Business Income Tax Return

2015

Department of the Treasury
Internal Revenue Service

Instructions for Form
1120-RIC
U.S. Income Tax Return for Regulated Investment Companies
Section references are to the Internal Revenue
Code unless otherwise noted.

Contents
Photographs of Missing Children
The Taxpayer Advocate Service .
How To Get Forms and
Publications . . . . . . . . . . .
General Instructions . . . . . . . . .
Purpose of Form . . . . . . . . . . .
Who Must File . . . . . . . . . . . .
General Requirements To Qualify
as a RIC . . . . . . . . . . . . .
Other Requirements . . . . . . . .
Definition of a Fund . . . . . . . . .
When To File . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . .
Paid Preparer Authorization . . . .
Assembling the Return . . . . . . .
Tax Payments . . . . . . . . . . . .
Estimated Tax Payments . . . . .
Interest and Penalties . . . . . . . .
Accounting Methods . . . . . . . .
Accounting Periods . . . . . . . . .
Rounding Off to Whole Dollars . .
Recordkeeping . . . . . . . . . . . .
Other Forms That May Be
Required . . . . . . . . . . . . .
Statements . . . . . . . . . . . . . .
Specific Instructions . . . . . . . . .
Period Covered . . . . . . . . . . .
Name and Address . . . . . . . . .
Item B. Date RIC Was
Established . . . . . . . . . . .
Item C. Employer Identification
Number (EIN) . . . . . . . . . .
Item D. Total Assets . . . . . . . . .
Item E. Final Return, Name
Change, Address Change, or
Amended Return . . . . . . . .
Part I—Investment Company
Taxable Income . . . . . . . .
Part II — Tax on Undistributed Net
Capital Gain Not Designated
Under Section 852(b)(3)(D) .
Schedule A—Deduction for
Dividends Paid . . . . . . . . .
Schedule B—Income From
Tax-Exempt Obligations . . .
Schedule J—Tax Computation . .
Schedule K–Other Information . .
Schedule L–Balance Sheets per
Books . . . . . . . . . . . . . . .
Schedule M–1 . . . . . . . . . . . .

Future Developments

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What's New

How To Get Forms
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For tax years beginning in 2015, the
recognition period for the built-in gains tax
has been permanently changed to 5
years. See Built-in Gains Tax, later.

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For the latest information about
developments related to Form 1120-RIC
Jan 28, 2016

and its instructions, such as legislation
enacted after this form and instructions
were published, go to
www.irs.gov/form1120ric.

The Internal Revenue Service is a proud
partner with the National Center for
Missing and Exploited Children.
Photographs of missing children selected
by the Center may appear in instructions
on pages that would otherwise be blank.
You can help bring these children home
by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

The Taxpayer Advocate
Service

The Taxpayer Advocate Service (TAS) is
an independent organization within the
IRS that helps taxpayers and protects
taxpayer rights. TAS's job is to ensure that
every taxpayer is treated fairly and knows
and understands their rights under the
Taxpayer Bill of Rights.
As a taxpayer, the RIC has rights that
the IRS must abide by in its dealings with
the RIC. TAS can help the RIC if:
A problem is causing financial difficulty
for the business.
The business is facing an immediate
threat of adverse action.
The RIC has tried repeatedly to contact
the IRS but no one has responded, or the
IRS hasn't responded by the date
promised.
TAS has offices in every state, the
District of Columbia, and Puerto Rico.
Local advocates' numbers are in their
local directories and at
www.taxpayeradvocate.irs.gov. The RIC
can also call TAS at 1-877-777-4778.
TAS also works to resolve large-scale
or systemic problems that affect many
taxpayers. If the RIC knows of one of
these broad issues, please report it to TAS
through the Systemic Advocacy
Management System at
Cat. No. 64251J

For more information, go to
www.irs.gov/advocate.

Internet. You can access the IRS website
24 hours a day, 7 days a week, at IRS.gov
to:
Download forms, instructions, and
publications;
Order IRS products online;
Research your tax questions online;
Search publications online by topic or
keyword;
View Internal Revenue Bulletins (IRBs)
published in recent years; and
Sign up to receive local and national tax
news by email.
Tax forms and publications. The RIC
can download or print all of the forms and
publications it may need at www.irs.gov/
formspubs.
Otherwise, the RIC can go to
www.irs.gov/orderforms to place an order
and have forms mailed to it. The RIC
should receive its order within 10 business
days.

General Instructions
Purpose of Form

Use Form 1120-RIC, U.S. Income Tax
Return for Regulated Investment
Companies, to report the income, gains,
losses, deductions, credits, and to figure
the income tax liability of a regulated
investment company (RIC) as defined in
section 851.

Who Must File

A domestic corporation that meets certain
conditions (discussed below) must file
Form 1120-RIC if it elects to be treated as
a RIC for the tax year (or has made an
election for a prior tax year and the
election has not been terminated or
revoked). The election is made by
computing taxable income as a RIC on
Form 1120-RIC.

General Requirements To
Qualify as a RIC

The term “regulated investment company”
applies to any domestic corporation that:
Is registered throughout the tax year as
a management company or unit
investment trust under the Investment
Company Act of 1940 (ICA),
Has an election in effect under the ICA
to be treated as a business development
company, or
Is a common trust fund or similar fund
that is neither an investment company
under section 3(c)(3) of the ICA nor a
common trust fund as defined under
section 584(a).

Other Requirements

In addition, the RIC must meet the (1)
income test, (2) asset test, and (3)
distribution requirements explained below.

The income test: At least 90% of its
gross income must be derived from the
following items:
Dividends;
Interest (including tax-exempt interest
income);
Payments with respect to securities
loans (as defined in section 512(a)(5));
Gains from the sale or other disposition
of stock or securities (as defined in ICA
section 2(a)(36)) or foreign currencies;
Other income (including gains from
options, futures, or forward contracts)
derived from the RIC's business of
investing in such stock, securities, or
currencies; and
Net income derived from an interest in a
qualified publicly traded partnership (as
defined in section 851(h)).
Income from a partnership or trust
qualifies under the 90% test to the extent
the RIC's distributive share of such income
is from items described above as realized
by the partnership or trust.
Income that a RIC receives in the
normal course of business as a
reimbursement from its investment advisor
is qualifying income for purposes of the
90% test if the reimbursement is includible
in the RIC's gross income.
A RIC that fails to meet the
requirements of section 851(b)(2) may still
be considered to have satisfied the
requirements of this test if:
Following the RIC's identification of the
failure, a description of each item of its
gross income described in section 851(b)
(2) is set forth in a statement for the tax
year.
Failure to meet the requirements of this
test is due to reasonable cause and not
due to willful neglect.
The asset test:
1. At the end of each quarter of the
RIC's tax year, at least 50% of the value of

its assets must be invested in the following
items:
Cash and cash items (including
receivables);
Government securities;
Securities of other RICs; and
Securities of other issuers, except that
the investment in a single issuer of
securities may not exceed 5% of the value
of the RIC's assets or 10% of the
outstanding voting securities of the issuer
(except as provided in section 851(e)).
2. At the end of each quarter of the
RIC's tax year, no more than 25% of the
value of the RIC's assets may be invested
in the securities of:
A single issuer (excluding government
securities or securities of other RICs);
Two or more issuers controlled by the
RIC and engaged in the same or related
trades or businesses; or
One or more qualified publicly traded
partnerships as defined in section 851(h).
See sections 851(b)(3) and 851(c) for
further details.
3. A RIC that fails to meet the
requirements of section 851(b)(3) for a
quarter may be considered to have
satisfied the requirements of this test if:
After the RIC identifies the failure, the
RIC provides a statement with a
description of each asset that causes the
RIC to fail to satisfy the requirements at
the close of the quarter.
The failure is due to reasonable cause
and not due to willful neglect.
The RIC disposes of the assets set forth
on the statement within 6 months after the
last day of the quarter that the RIC
identified the failure.
4. De minimis failures. A RIC that fails
to meet the requirements of section 851(b)
(3) for a quarter may be considered to
have satisfied the requirements of this test
if:
Such failure is due to ownership of
assets that the total value does not
exceed the lesser of:
a. One percent of the total value of the
RIC's assets at the end of the quarter for
which the measurement is done, or
b. $10,000,000.
The RIC disposes of the asset following
the identification of the failure within 6
months after the last day of the quarter in
which the RIC identified the failure.
Note. For special rules regarding failure
to meet the requirements of the income
and asset tests, see section 851(d)(2).
Distribution requirements. The RIC's
deduction for dividends paid for the tax
year (as defined in section 561, but
without regard to capital gain dividends)
equal or exceed the sum of:

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90% of its investment company taxable
income determined without regard to
section 852(b)(2)(D); and
90% of the excess of the RIC's interest
income excludable from gross income
under section 103(a) over its deductions
disallowed under sections 265 and 171(a)
(2).
A RIC that does not satisfy the
distribution requirements will be
CAUTION
subject to taxation as a C
corporation.

!

Earnings and profits. The RIC must
either have been a RIC for all tax years
ending after November 7, 1983, or, at the
end of the current tax year, had no
accumulated earnings and profits from
any non-RIC tax year.
Note. For this purpose, current year
distributions are treated as made from the
earliest earnings and profits accumulated
in any non-RIC tax year. See section
852(c)(3). Also see section 852(e) for
procedures that may allow the RIC to
avoid disqualification for the initial year if
the RIC did not meet this requirement.

Definition of a Fund

The term “fund” refers to a separate
portfolio of assets, whose beneficial
interests are owned by the holders of a
class or series of stock of the RIC that is
preferred over all other classes or series
for that portfolio of assets.

When To File

Generally, a RIC must file its income tax
return by the 15th day of the 3rd month
after the end of its tax year. A new RIC
filing a short period return must generally
file by the 15th day of the 3rd month after
the short period ends. A RIC that has
dissolved must generally file by the 15th
day of the 3rd month after the date of
dissolution.
If the due date falls on a Saturday,
Sunday, or legal holiday, the RIC may file
its return on the next business day.

Private Delivery Services

RICs can use certain private delivery
services designated by the IRS to meet
the “timely mailing as timely filing/paying”
rule for tax returns and payments.
These private delivery services include
only the following.
Federal Express (FedEx): FedEx First
Overnight, FedEx Priority Overnight,
FedEx Standard Overnight, FedEx 2Day,
FedEx International Next Flight Out,
FedEx International Priority, FedEx
International First, and FedEx International
Economy.
United Parcel Service (UPS): UPS Next
Day Air Early AM, UPS Next Day Air, UPS
Next Day Air Saver, UPS 2nd Day Air,

UPS 2nd Day Air A.M., UPS Worldwide
Express Plus, and UPS Worldwide
Express.
For the IRS mailing address to use if
you are using a private delivery service, go
to IRS.gov and enter “private delivery
services” in the search box.
The private delivery service can tell you
how to get written proof of the mailing
date.
Private delivery services can't
deliver items to P.O. boxes. You
CAUTION
must use the U.S. Postal Service
to mail any item to an IRS P.O. box
address.

!

Extension of Time To File

File Form 7004, Application for Automatic
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns, to request a 6-month
extension of time to file. Generally, the
corporation must file Form 7004 by the
regular due date of the return.

Who Must Sign

The return must be signed and dated by:
The president, vice president, treasurer,
assistant treasurer, chief accounting
officer, or
Any other corporate officer (such as tax
officer) authorized to sign.
If a return is filed on behalf of a RIC by
a receiver, trustee, or assignee, the
fiduciary must sign the return, instead of
the corporate officer. Returns and forms
signed by a receiver or trustee in
bankruptcy on behalf of a RIC must be
accompanied by a copy of the order or
instructions of the court authorizing
signing of the return or form.
Note. If this return is being filed for a
series fund (as defined in section 851(g)
(2)), the return may be signed by any
officer authorized to sign for the RIC in
which the fund is a series.
If an employee of the RIC completes
Form 1120-RIC, the paid preparer's space
should remain blank. A preparer who does
not charge the RIC to prepare Form
1120-RIC should not complete that
section. Generally, anyone who is paid to
prepare the return must sign it and fill in
the “Paid Preparer Use Only” section.
The paid preparer must complete the
required preparer information and:
Sign the return in the space provided for
the preparer's signature; and
Give a copy of the return to the
corporation.
A paid preparer may sign original
TIP or amended returns by rubber
stamp, mechanical device, or
computer software program.

Where To File
File the RIC's return at the applicable IRS address listed below.
If the RIC's principal
business, office, or agency
is located in:
Connecticut, Delaware, District
of Columbia, Florida, Georgia,
Illinois, Indiana, Kentucky,
Maine, Maryland,
Massachusetts, Michigan,
New Hampshire, New Jersey,
New York, North Carolina,
Ohio, Pennsylvania, Rhode
Island, South Carolina,
Tennessee, Vermont, Virginia,
West Virginia, Wisconsin
Alabama, Alaska, Arizona,
Arkansas, California,
Colorado, Hawaii, Idaho, Iowa,
Kansas, Louisiana, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Mexico, North Dakota,
Oklahoma, Oregon, South
Dakota, Texas, Utah,
Washington, Wyoming

And the total assets at
the end of the tax year
(Form 1120-RIC, page 1,
item D) are:
Use the following address:
Less than $10 million

Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999-0012

$10 million or more

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012

Any amount

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012

A group of corporations with members located in more than one service center area will
often keep all the books and records at the principal office of the managing corporation.
In this case, file the tax returns with the service center for the area in which the principal
office of the managing corporation is located.

Paid Preparer
Authorization

If the RIC wants to allow the IRS to
discuss its 2015 tax return with the paid
preparer who signed the return, check the
“Yes” box in the signature area of the
return. This authorization applies only to
the individual whose signature appears in
the “Paid Preparer Use Only” section of
the RIC's return. It does not apply to the
firm, if any, shown in that section.
If the “Yes” box is checked, the RIC is
authorizing the IRS to call the paid
preparer to answer any questions that
may arise during the processing of its
return. The RIC is also authorizing the
paid preparer to:
Give the IRS any information that is
missing from the return,
Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The RIC is not authorizing the paid
preparer to receive any refund check, bind
the RIC to anything (including any
additional tax liability), or otherwise
represent the RIC before the IRS.
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The authorization will automatically end
no later than the due date (excluding
extensions) for filing the RIC's 2016 tax
return. If the RIC wants to expand the paid
preparer's authorization or revoke the
authorization before it ends, see Pub. 947,
Practice Before the IRS and Power of
Attorney.

Assembling the Return

To ensure that the RIC's tax return is
correctly processed, attach all schedules,
statements, and other forms after page 4,
Form 1120-RIC, in the following order.
1. Schedule N (Form 1120).
2. Schedule D (Form 1120).
3. Schedule O (Form 1120).
4. Form 4626.
5. Form 4136.
6. Additional schedules in
alphabetical order.
7. Additional forms in numerical order.
8. Supporting statements and
attachments.
Complete every applicable entry space
on Form 1120-RIC. Do not enter “See
attached” instead of completing the entry
spaces. If more space is needed on the
forms or schedules, attach separate

sheets using the same size and format as
the printed forms.
If there are supporting statements and
attachments, arrange them in the same
order as the schedules or forms they
support and attach them last. Show the
totals on the printed forms. Enter the RIC's
name and EIN on each supporting
statement or attachment.

Tax Payments

Generally, the RIC must pay the tax due in
full no later than the 15th day of the 3rd
month after the end of the tax year. See
the instructions for line 30. If the due date
falls on a Saturday, Sunday, or legal
holiday, the payment is due on the next
day that isn't a Saturday, Sunday, or legal
holiday.

Electronic Deposit
Requirement

RICs must use electronic funds transfer to
make all federal tax deposits (such as
deposits of employment, excise, and
corporate income tax). Generally,
electronic funds transfers are made using
the Electronic Federal Tax Payment
System (EFTPS). However, if the RIC
does not want to use EFTPS, it can
arrange for its tax professional, financial
institution, payroll service, or other trusted
third party to make deposits on its behalf.
Also, it may arrange for its financial
institution to submit a same-day tax wire
payment (discussed below) on its behalf.
EFTPS is a free service provided by the
Department of the Treasury. Services
provided by a tax professional, financial
institution, payroll service, or other third
party may have a fee.
To get more information about EFTPS
or to enroll in EFTPS, visit www.eftps.gov,
or call 1-800-555-4477 (TTY/TDD
1-800-733-4829).

Depositing on time. For any deposit
made by EFTPS to be on time, the RIC
must submit the deposit by 8 p.m. Eastern
time the day before the date the deposit is
due. If the RIC uses a third party to make
deposits on its behalf, they may have
different cutoff times.
Same-day wire payment option. If the
RIC fails to submit a deposit transaction
on EFTPS by 8 p.m. Eastern time on the
day before the date a deposit is due, it can
still make its deposit on time by using the
Federal Tax Collection Service (FTCS).
To use the same-day wire payment
method, the RIC will need to make
arrangements with its financial institution
ahead of time regarding availability,
deadlines, and costs. Financial institutions
may charge a fee for payments made this
way. To learn more about the information
the RIC will need to provide to its financial
institution to make a same-day wire

payment, visit the IRS website at
www.irs.gov/Payments and click on
“Same-day wire”.

Estimated Tax Payments

Generally, the following rules apply to the
RIC's payments of estimated tax.
The RIC must make installment
payments of estimated tax if it expects its
total tax for the year (less applicable
credits) to be $500 or more.
The installments are due by the 15th
day of the 4th, 6th, 9th, and 12th months
of the tax year. If any date falls on a
Saturday, Sunday, or legal holiday, the
installment is due on the next regular
business day.
The RIC must use electronic funds
transfer to make installment payments of
estimated tax.
Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to compute
estimated tax. See the Instructions for
Form 1120-W.
If the RIC overpaid its estimated tax, it
may be able to get a quick refund by filing
Form 4466, Corporation Application for
Quick Refund of Overpayment of
Estimated Tax. The overpayment must be
at least 10% of the RIC's expected income
tax liability and at least $500.
For more information, including
penalties, see the instructions for line 29,
Estimated tax penalty, later.

Interest and Penalties
Interest. Interest is charged on taxes
paid late even if an extension of time to file
is granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements from the due
date (including extensions) to the date of
payment. The interest charge is figured at
a rate determined under section 6621.
Late filing of return. A RIC that does not
file its tax return by the due date, including
extensions, may be penalized 5% of the
unpaid tax for each month or part of a
month the return is late, up to a maximum
of 25% of the unpaid tax. The minimum
penalty for a return that is over 60 days
late is the smaller of the tax due or $135.
The penalty will not be imposed if the RIC
can show that the failure to file on time
was due to reasonable cause.
Late payment of tax. A RIC that does
not pay the tax when due generally may
be penalized 1 2 of 1% of the unpaid tax for
each month or part of a month the tax is
not paid, up to a maximum of 25% of the
unpaid tax. The penalty will not be
imposed if the RIC can show that the
failure to pay on time was due to
reasonable cause.
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Reasonable cause determinations. If
the RIC receives a notice about a penalty
after it files its return, send the IRS an
explanation and we will determine if the
RIC meets the reasonable cause criteria.
Do not attach an explanation when the
RIC's return is filed.
Trust fund recovery penalty. This
penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
are not collected or withheld, or these
taxes are not paid. These taxes are
generally reported on:
Form 720, Quarterly Federal Excise Tax
Return;
Form 941, Employer's QUARTERLY
Federal Tax Return;
Form 944, Employer's ANNUAL
Federal Tax Return; or
Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are
determined by the IRS to be responsible
for collecting, accounting for, or paying
over these taxes, and who acted willfully in
not doing so. The penalty is equal to the
full amount of the unpaid trust fund tax.
See the Instructions for Form 720 or Pub.
15 (Circular E), for details, including the
definition of responsible persons.
Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

Accounting Methods

Figure taxable income using the method of
accounting regularly used in keeping the
RIC's books and records. In all cases, the
method used must clearly reflect taxable
income.
Generally, permissible methods
include:
Cash,
Accrual, or
Any other method authorized by the
Internal Revenue Code.
Accrual method. Generally, a RIC must
use the accrual method of accounting if its
average annual gross receipts exceed $5
million. See section 448(c).
Under the accrual method, an amount
is includible in income when:
1. All the events have occurred that fix
the right to receive the income, which is
the earliest of the date:
a. the required performance takes
place,
b. payment is due, or
c. payment is received, and
2. The amount can be determined
with reasonable accuracy.

See Regulations section 1.451-1(a)
and Pub. 538, Accounting Periods and
Methods, for details.
Mark-to-market accounting method.
Generally, dealers in securities must use
the mark-to-market accounting method
described in section 475. Under this
method, any security that is inventory to
the dealer must be held at its fair market
value (FMV).
Any security held by a dealer that is not
inventory and held at the close of the tax
year is treated as sold at its FMV on the
last business day of the tax year. Any
resulting gain or loss must be taken into
account that year in determining gross
income. The gain or loss taken into
account is generally treated as ordinary
gain or loss.
For details, including exceptions, see
section 475, the related regulations, and
Rev. Rul. 97-39, 1997-39 I.R.B. 4.
Dealers in commodities and traders in
securities and commodities may elect,
with some exceptions, to use the
mark-to-market accounting method. To
make the election, the RIC must file a
statement describing the election, the first
tax year the election is to be effective, and
in the case of an election for traders in
securities or commodities, the trade or
business for which the election is made.
Except for new taxpayers, the statement
must be filed by the due date (not
including extensions) of the income tax
return for the tax year immediately
preceding the election year and attached
to that return, or if applicable, to a request
for an extension of time to file that return.
For more details, see Rev. Proc. 99-17,
1999-7 I.R.B. 52, and sections 475(e) and
(f).
Change in accounting method.
Generally, the RIC must get IRS consent
to change either an overall method of
accounting or the accounting treatment of
any material item. To do so, the RIC must
file Form 3115, Application for Change in
Accounting Method. See the Instructions
for Form 3115 for more information and
exceptions, including filing exceptions for
qualified small taxpayers and filing
exceptions for certain first-year tangible
property changes for small business
taxpayers.

Accounting Periods

changing its tax year. To obtain the
consent, file Form 1128, Application To
Adopt, Change, or Retain a Tax Year.
However, under certain conditions, a RIC
may change its tax year without obtaining
the consent.
See the Instructions for Form 1128 and
Pub. 538 for more information on
accounting periods and tax years.

Rounding Off to
Whole Dollars

A RIC can round off cents to whole dollars
on its return and schedules. If the RIC
does round to whole dollars, it must round
all amounts. To round, drop amounts
under 50 cents and increase amounts
from 50 cents to 99 cents to the next dollar
(for example, $1.39 becomes $1 and
$2.50 becomes $3).
If two or more amounts must be added
to figure the amount to enter on a line,
include cents when adding the amounts
and round off only the total.

Recordkeeping

Keep the RIC's records for as long as they
may be needed for administration of any
provision of the Internal Revenue Code.
Usually, records that support an item of
income, deduction, or credit on the return
must be kept for 3 years from the date the
return is due or filed, whichever is later.
Keep records that verify the RIC's basis in
property for as long as they are needed to
figure the basis of the original or
replacement property.
The RIC should keep copies of all filed
returns. They help in preparing future and
amended returns and in the calculation of
earnings and profits.

Other Forms That May Be
Required

In addition to Form 1120-RIC, the RIC
may have to file some of the following
forms. Also see Pub. 542, Corporations,
for an expanded list of forms the RIC may
be required to file.

Form 976, Claim for Deficiency
Dividends Deductions by a Personal
Holding Company, Regulated Investment
Company, or Real Estate Investment
Trust. Use this form to claim a deficiency
dividend under section 860.

A RIC must figure its taxable income on
the basis of a tax year. A tax year is the
annual accounting period a RIC uses to
keep its records and report its income and
expenses. RICs can use a calendar year
or a fiscal year. For more information
about accounting periods, see
Regulations sections 1.441-1 and 1.441-2.

Form 1099-DIV, Dividends and
Distributions. Report certain dividends and
distributions.

Change of tax year. Generally, a RIC
must receive consent from the IRS before

Form 1099-INT, Interest Income. Report
interest income.

Form 1096, Annual Summary and
Transmittal of U.S. Information Returns.
Use Form 1096 to transmit Forms 1099
and 5498 to the Internal Revenue Service.

-5-

Form 2438, Undistributed Capital Gains
Tax Return, must be filed by the RIC if it
designates undistributed net long-term
capital gains under section 852(b)(3)(D).
Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains,
must be completed and a copy given to
each shareholder for whom the RIC paid
tax on undistributed net long-term capital
gains under section 852(b)(3)(D).
Form 3520, Annual Return to Report
Transactions With Foreign Trusts and
Receipt of Certain Foreign Gifts, may be
required if the RIC received a distribution
from, was a grantor of, or transferor to, a
foreign trust during the tax year. See
Question 5 of Schedule N (Form 1120).
Form 8613, Return of Excise Tax on
Undistributed Income of Regulated
Investment Companies. If the RIC is liable
for the 4% excise tax on undistributed
income under section 4982 or makes an
election under section 4982(e)(4), it must
file this return for the calendar year.
Form 8927, Determination Under 860(e)
(4) by a Qualified Investment Entity. Use
Form 8927 to establish a determination
date under Section 860(e)(4) for purposes
of making a deficiency dividend
distribution.

Statements
Reportable transaction disclosure
statement. Disclose information for each
reportable transaction in which the RIC
participated. Form 8886, Reportable
Transaction Disclosure Statement, must
be filed for each tax year that the federal
income tax liability of the RIC is affected
by its participation in the transaction. The
following are reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to one of the types of
transactions that the IRS has determined
to be a tax avoidance transaction and
identified by notice, regulation, or other
published guidance as a listed
transaction.
2. Any transaction offered under
conditions of confidentiality for which the
RIC (or a related party) paid an advisor a
fee of at least $250,000.
3. Certain transactions for which the
RIC (or a related party) has contractual
protection against disallowance of the tax
benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single
year or $20 million in any combination of
years.
5. Any transaction identified by the
IRS by notice, regulation, or other
published guidance as a “transaction of

interest.” See Notice 2009-55, 2009-31
I.R.B. 170.
For more information, see Regulations
section 1.6011-4. Also, see the
Instructions for Form 8886.
Penalties. The RIC may have to pay a
penalty if it is required to disclose a
reportable transaction under section 6011
and fails to properly complete and file
Form 8886. Penalties may also apply
under section 6707A if the RIC fails to file
Form 8886 with its Form 1120-RIC, fails to
provide a copy of Form 8886 to the Office
of Tax Shelter Analysis (OTSA), or files a
form that fails to include all the information
required (or includes incorrect
information). Other penalties, such as an
accuracy-related penalty under section
6662A, may also apply. See the
Instructions for Form 8886 for details on
these and other penalties.
Reportable transactions by material
advisors. Material advisors to any
reportable transaction must disclose
certain information about the reportable
transaction by filing Form 8918, Material
Advisor Disclosure Statement, with the
IRS. For details, see the Instructions for
Form 8918.
Safe harbor under Temporary Regulations section 1.67-2T(j)(2). Generally,
shareholders in a nonpublicly offered fund
that are individuals or pass-through
entities are treated as having received a
dividend in an amount equal to the
shareholder's allocable share of affected
RIC expenses for the calendar year. They
are also treated as having paid or incurred
an expense described in section 212 (and
subject to the 2% limitation on
miscellaneous itemized deductions) in the
same amount for the calendar year.
Election. A nonpublicly offered fund
may elect to treat its affected RIC
expenses for a calendar year as equal to
40% of the amount determined under
Temporary Regulations section 1.67-2T(j)
(1)(i) for that calendar year.
To make this election, attach to Form
1120-RIC for the tax year that includes the
last day of the calendar year for which the
fund makes the election a statement that it
is making an election under Temporary
Regulations section 1.67-2T(j)(2). Once
made, the election remains in effect for all
subsequent calendar years and may not
be revoked without IRS consent. See
Temporary Regulations section 1.67-2T
for definitions and other details.
Transfers to a corporation controlled
by the transferor. Every significant
transferor (as defined in Regulations
section 1.351-3(d)) that receives stock of
a corporation in exchange for property in a
nonrecognition event must include the
statement required by Regulations section

1.351-3(a) on or with the transferor's tax
return for the tax year of the exchange.
The transferee corporation must include
the statement required by Regulations
section 1.351-3(b) on or with its return for
the tax year of the exchange, unless all the
required information is included in any
statement(s) provided by a significant
transferor that is attached to the same
return for the same section 351 exchange.
If the transferor or transferee corporation
is a controlled foreign corporation, each
U.S. shareholder (within the meaning of
section 951(b)) must include the required
statement on or with its return.
Distributions under section 355. Every
corporation that makes a distribution of
stock or securities of a controlled
corporation, as described in section 355
(or so much of section 356 as it relates to
section 355), must attach the statement
required by Regulations section
1.355-5(a) to its return for the year of the
distribution. A significant distributee (as
defined in Regulations section 1.355-5(c))
that receives stock or securities or a
controlled corporation must include the
statement required by Regulations section
1.355-5(b) on or with its return for the year
of receipt. If the distributing or distributee
corporation is a controlled foreign
corporation, each U.S. shareholder (within
the meaning of section 951(b)) must
include the statement on or with its return.
Dual consolidated losses. If a domestic
corporation incurs a dual consolidated
loss (as defined in Regulations section
1.1503-2(c)(5)), the corporation (or
consolidated group) may need to attach
an elective relief agreement and/or an
annual certification as provided in
Regulations section 1.1503-2(g)(2).
Notice to shareholders. A RIC must
notify its shareholders within 60 days after
the close of its tax year of the distribution
made during the tax year that qualifies for
the dividends-received deduction under
section 243. For purposes of the
dividends-received deduction, a capital
gain dividend received from a RIC is not
treated as a dividend. The capital gain
dividend is treated as a long-term capital
gain by the shareholder.
Consent to partnership election to
close its books monthly. Certain money
market funds that obtain an interest in an
eligible partnership that invests in assets
exempt from taxation under section 103
may be qualified to pay exempt-interest
dividends to their shareholders. To qualify
for payment of exempt-interest dividends,
a RIC must meet the quarterly net asset
value (NAV) requirements under section
852(b)(5). To maintain the required NAV
at the end of each quarter, the RIC may
take into account on a monthly basis its
distributive share of partnership items if
the eligible partnership makes a proper
-6-

election to close its books at the end of
each month. See Rev. Proc. 2003-84 for
details.
Eligibility. A RIC is entitled to take into
account its distributive share of
partnership items on a monthly basis if:
The RIC is entitled to hold itself out as a
money market fund, or an equivalent of a
money market fund.
The RIC provides a statement to the
partnership that it consents to the
partnership's election to close its books
monthly and that the RIC will include in its
taxable income its distributive share of
partnership items in a manner consistent
with the election. See Rev. Proc. 2003-84
for the required contents of the statement
of consent.
The RIC provides the statement of
consent to the custodian or manager of
the partnership by the last day of the
second month after the month in which the
RIC acquires the partnership interest.
The partnership is eligible under Rev.
Proc. 2003-84 to make the monthly
closing election and the election is
effective by the second month after the
month in which the RIC acquires the
partnership interest.
Statement of consent. The consent to a
partnership's monthly closing election is
effective for the month in which the RIC
acquires the partnership interest, unless
the RIC requests that the consent be
effective for either of the two immediately
following calendar months. In addition to
timely providing the partnership with the
statement of consent, the statement
should be filed with Form 1120-RIC for the
first tax year in which the consent is
effective. The monthly closing consent
(and the partnership's election) may be
revoked only with the consent of the
Commissioner. However, the RIC's
consent becomes ineffective on any day
when the RIC ceases to be an eligible
partner and the partnership's monthly
closing election is terminated as of the first
day of any month the partnership is no
longer eligible for the election under Rev.
Proc. 2003-84. For more details, see the
Revenue Procedure.
Annual information statement for elections under section 108(i). If the RIC
made an election in 2009 or 2010 to defer
income from cancellation of debt (COD) in
connection with the reacquisition of an
applicable debt instrument, the RIC must
attach a statement to its return beginning
with the tax year following the tax year for
which the RIC made the election, and
ending the first tax year all income
deferred has been included in income.
The statement must be labeled "Section
108(i) Information Statement" and must
clearly identify, for each applicable debt
instrument to which an election under
section 108(i) applies, the following.

1. Any deferred COD income that is
included in income in the current tax year.
2. Any deferred COD income that has
been accelerated because of an event
described in section 108(i)(5)(D) and must
be included in income in the current tax
year. Include a description and the date of
the acceleration event.
3. Any deferred COD income that has
not been included in income in the current
or prior tax years.
4. Any deferred original issue
discount (OID) deduction allowed as a
deduction in the current tax year.
5. Any deferred OID deduction that is
allowed as a deduction in the current tax
year because of an accelerated event
described in section 108(i)(5)(D).
6. Any deferred OID deduction that
has not been deducted in the current or
prior tax years.
In addition, the RIC must annually
include a copy of the election statement it
filed to make the election to defer the
income. For more information on deferring
the income, see the instructions for line 7.
For more information regarding the annual
information statement, see Rev. Proc.
2009-37, 2009-36 I.R.B. 309.
Other forms and statements. See Pub.
542, Corporations, for a list of other forms
and statements a corporation may need to
file in addition to the forms and statements
discussed throughout these instructions.

Specific Instructions
Period Covered

File the 2015 return for calendar year 2015
and fiscal years that begin in 2015. For a
fiscal year return, fill in the tax year in the
space at the top of the form.

Note. The 2015 Form 1120-RIC may also
be used if:
The RIC has a tax year of less than 12
months that begins and ends in 2016; and
The 2016 Form 1120-RIC is not
available at the time the RIC is required to
file its return.
The RIC must show its 2016 tax year
information on the 2015 Form 1120-RIC
and take into account any tax law changes
that are effective for tax years beginning
after December 31, 2015.

Name and Address

Enter the RIC's true name (as set forth in
the charter or other legal document
creating it), address, and EIN on the
appropriate lines. Enter the address of the
RIC's principal office or place of business.
Include the suite, room, or other unit
number after the street address. If the post
office does not deliver mail to the street

address and the RIC has a P.O. box, show
the box number instead.

change to an “in care of” address), check
the “Address change” box.

Note. Do not use the address of the
registered agent for the state in which the
RIC is incorporated. For example, if a
business is incorporated in Delaware or
Nevada and the RIC's principal office is
located in Little Rock, AR, the RIC should
enter the Little Rock address.

Note. If a change in address or
responsible party occurs after the return is
filed, use Form 8822-B, Change of
Address or Responsible Party—Business,
to notify the IRS of the new address. See
the Instructions for Form 8822-B for
details.

If the RIC receives its mail in care of a
third party (such as an accountant or an
attorney), enter on the street address line
“C/O” followed by the third party's name
and street address or P.O. box.

Amended return. If the RIC is amending
its return, check the box for “Amended
return,” complete the entire return, correct
the appropriate lines with the new
information, and refigure the RIC's tax
liability. Attach a statement that explains
the reason for the amendments and
identifies the lines being changed on the
amended return.

Item B. Date RIC Was
Established

If this return is being filed for a series fund
(as described in section 851(g)(2)), enter
the date the fund was created. Otherwise,
enter the date the RIC was incorporated or
organized.

Item C. Employer
Identification Number
(EIN)

Enter the RIC's EIN. If the RIC does not
have an EIN, it must apply for one. An EIN
may be applied for:
Online— Click on the Employer ID
Numbers link at www.irs.gov/businesses.
The EIN is issued immediately once the
application information is validated.
By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the RIC has not received its EIN by
the time the return is due, write “Applied
for” and the date you applied in the space
for the EIN. See the Instructions for Form
SS-4 for details.

Item D. Total Assets

Enter the RIC's total assets (as
determined by the accounting method
regularly used in keeping the fund's books
and records) at the end of the tax year. If
there are no assets at the end of the tax
year, enter -0-.

Item E. Final Return, Name
Change, Address Change,
or Amended Return

If this is the RIC's final return and it will
no longer exist, check the “Final return”
box.
If the RIC has changed its name since it
last filed a return, check the “Name
change” box. Generally, a RIC must also
have amended its articles of incorporation
and filed the amendment with the state in
which it was incorporated.
If the RIC has changed its address
since it last filed a return (including a
-7-

Part I—Investment
Company Taxable Income
Income
Line 1. Dividends. A RIC that is the
holder of record of any share of stock on
the record date for a dividend payable on
that stock must include the dividend in
gross income by the later of: the date the
share became ex-dividend, or the date the
RIC acquired the share.
Line 2. Interest. Enter taxable interest on
U.S. obligations and on loans, notes,
mortgages, bonds, bank deposits,
corporate bonds, tax refunds, etc.
Do not offset interest expense against
interest income. Special rules apply to
interest income from certain
below-market-rate loans. See section
7872 for more information on the tax
treatment of loans on which inadequate or
no interest is charged.
Note. Report tax-exempt interest income
on Schedule K, item 8. Do not include
tax-exempt interest on line 2. Also, if
required, include the same amount on
Schedule M-1, line 7.
Include interest income from tax credit
bonds on line 2. If the RIC elects to pass
through the credits to shareholders, see
the instructions for Part II, Schedule A,
line 7.
Line 3. Net foreign currency gain or
(loss) from section 988 transactions.
Enter the net foreign currency gain (loss)
from section 988 transactions treated as
ordinary income or loss under section
988(a)(1)(A). Attach a statement detailing
each separate transaction.

Line 4. Payments with respect to securities loans. Enter the amount
received or accrued from a broker as
compensation for securities loaned by the
RIC to the broker for use in completing
market transactions. The payments must
meet the requirements of section 512(a)
(5).
Line 5. Excess of net short-term capital gain over net long-term capital loss.
Enter the amount from Schedule D (Form
1120), line 16. Every sale or exchange of
a capital asset must be reported even if no
gain or loss is indicated.
If a RIC has a net capital loss for any
tax year, the excess of the net short-term
capital loss over the net long term capital
gain shall be a short-term capital loss
arising on the first day of the next tax year.
The excess of the net long-term capital
loss over the net short-term capital gain
shall be a long-term capital loss arising on
the first day of the next tax year. Also,
there is no limit on the number of tax years
that a RIC is allowed to carryover a net
capital loss. See section 1212(a)(3) for
more information.
Line 7. Other income. Enter any other
taxable income (loss) not reported on lines
1 through 6, except net capital gain
reported in Part II. List the type and
amount of income on an attached
statement. If the RIC has only one item of
other income, describe it in parentheses
on line 7. Examples of other income to
report on line 7 include:
Gross rents.
Recoveries of fees or expenses in
settlement or litigation.
Amounts received or accrued as
consideration for entering into agreements
to make real property loans or to purchase
or lease real property.
Recoveries of bad debts deducted in
prior years under the specific charge-off
method.
Refunds of taxes deducted in prior
years to the extent they reduced income
subject to tax in the year deducted (see
section 111). Do not offset current year
taxes against prior year tax refunds.
The recapture amount under section
280F if the business use of listed property
drops to 50% or less. To figure the
recapture amount, complete Part IV of
Form 4797.
Ordinary income from trade or business
activities of a partnership (from
Schedule K-1 (Form 1065 or 1065-B)). Do
not offset ordinary losses against ordinary
income. Instead, include the losses on
line 22. Show the partnership's name,
address, and EIN on a separate statement
attached to this return. If the amount
entered is from more than one
partnership, identify the amount from each
partnership.

Any net positive section 481 income
adjustment due to a change in method of
accounting. See Form 3115 and its
instructions for more information.
Part or all of the proceeds received from
certain corporate-owned life insurance
contracts issued after August 17, 2006.
Corporations that own one or more
employer-owned life insurance contracts
issued after this date must file Form 8925,
Report of Employer-Owned Life Insurance
Contracts. See section 101(j) for details.
Income from cancellation of debt (COD)
from the repurchase of a debt instrument
for less than its adjusted issue price.
Any COD income deferred from 2009 or
2010 that is includible in income in 2015.
See section 108(i), Regulations section
1.108(i)-1, and Rev. Proc. 2009-37.
If the RIC is a direct or indirect partner
in a partnership, other special rules apply.
See Regulations section 1.108(i)-2.
The RIC's share of the following income
from Form 8621, Information Return by a
Shareholder of a Passive Foreign
Investment Company or Qualified Electing
Fund.
1. Ordinary earnings of a qualified
electing fund (QEF).
2. Gain or loss from marking passive
foreign investment company income
(PFIC) stock to market.
3. Gain or loss from sale or other
disposition of Section 1296 stock.
4. Excess distributions from a Section
1291 fund.
See Form 8621 and the Instructions for
Form 8621 for details.

Deductions
Limitations on Deductions
Transactions between related taxpayers. Generally, an accrual basis taxpayer
may only deduct business expenses and
interest owed to a related party in the year
the payment is includible in the income of
the related party. See section 267 for
limitations on deductions for interest and
expenses paid to a related party.
Also see the instructions for Form
8926, Disqualified Corporate Interest
Expense Disallowed Under Section 163(j)
and Related Information, with respect to
section 163(j).
Golden parachute payments. A portion
of the payments made by a RIC to key
personnel that exceeds their usual
compensation may not be deductible. This
occurs when the RIC has an agreement
(golden parachute) with key employees to
pay them an amount substantially in
excess of their base amount if control of
the RIC changes. See section 280G and
Regulations section 1.280G-1 for more
information. Also, see the instructions for
line 9.
-8-

Business start-up and organizational
costs. A RIC can elect to deduct a limited
amount of start-up and organizational
costs it paid or incurred. Any remaining
costs generally must be amortized over an
180-month period. See sections 195 and
248 and the related regulations.
Time for making an election. The
RIC generally elects to deduct start-up or
organizational costs by claiming the
deduction on its income tax return filed by
the due date (including extensions) for the
tax year in which the active trade or
business begins. However, for start-up or
organizational costs paid or incurred
before September 9, 2008, the RIC may
be required to attach a statement to its
return to elect to deduct such costs. See
Regulations sections 1.195-1 and 1.248-1
for details.
For more details including special rules
for costs paid or incurred before
September 9, 2008, see the Instructions
for Form 4562. Also, see Pub. 535,
Business Expenses.
If the RIC timely filed its return for the
year without making an election, it can still
make an election by filing an amended
return within 6 months of the due date of
the return (excluding extensions). Clearly
indicate the election on the amended
return and write "Filed pursuant to section
301.9100-2" at the top of the amended
return. File the amended return at the
same address the RIC filed its original
return. The election applies when figuring
taxable income for the current tax year
and all subsequent years.
Note. The RIC can choose to forgo the
elections above by clearly electing to
capitalize its start-up or organizational
costs on an income tax return filed by the
due date (including extensions) for the tax
year in which the active trade or business
begins.
Report the deductible amount of such
costs and any amortization on line 22. For
amortization that begins during the current
tax year, complete and attach Form 4562.
Section 265(a)(3) limitation. If the RIC
paid exempt-interest dividends during the
tax year (including those dividends
deemed paid under section 855), no
deduction is allowed for that portion of
otherwise deductible expenses allocable
to tax-exempt income. The excluded
amount is determined by the amount
tax-exempt income bears to total gross
income (including tax-exempt income but
excluding capital gain net income).
Net operating loss deduction. The net
operating loss deduction is not allowed.
Passive activity limitations. Limitations
on passive activity losses and credits
under section 469 apply to RICs that are

closely held (as defined in section 469(j)
(1)). RICs subject to the passive activity
limitations must complete Form 8810,
Corporate Passive Activity Loss and
Credit Limitations, to compute their
allowable passive activity loss and credit.
Before completing Form 8810, see
Temporary Regulations section 1.163-8T,
for rules on allocating interest expense
among activities.
Closely held corporation. A RIC is
closely held if at any time during the last
half of the tax year more than 50% in value
of its outstanding stock is directly or
indirectly owned by or for not more than
five individuals and it is not a personal
service corporation.
Line 9. Compensation of officers.
Enter the deductible officer's
compensation on line 9. The RIC
determines who is an officer under the
laws of the state where incorporated. Do
not include compensation deductible
elsewhere on the return, such as elective
contributions to a section 401(k) cash or
deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan.
If the RIC's total receipts are $500,000
or more, total receipts by adding:
1. Line 8, Part I,
2. Net capital gain from line 1, Part II,
and
3. Line 9a, Form 2438.
Disallowance of deduction for
employee compensation in excess of
$1 million. Publicly held corporations
cannot deduct compensation to a
“covered employee” to the extent that the
compensation exceeds $1 million.
Generally, a covered employee is:
The principal executive officer (or an
individual acting in that capacity) as of the
end of the tax year; or
A principal employee whose total
compensation must be reported to
shareholders under the Securities
Exchange Act of 1934 because the
employee is among the three highest
compensated officers for that tax year
(other than the principal executive officer).
For this purpose, compensation does
not include:
Income from certain employee trusts,
annuity plans, or pensions.
Any benefit paid to an employee that is
excluded from the employee's income.
The deduction limit does not apply to:
Commissions based on individual
performance;
Qualified performance-based
compensation; and
Income payable under a written, binding
contract in effect on February 17, 1993.

The $1 million limit is reduced by
amounts disallowed as excess parachute
payments under section 280G.
For details, see section 162(m) and
Regulations section 1.162-27. Also, see
Notice 2007-49, 2007-25 I.R.B. 1429.
Line 10. Salaries and wages. Enter the
salaries and wages paid for the tax year
reduced by the amount claimed on:
Form 5884, Work Opportunity Credit;
Form 8844, Empowerment Zone
Employment Credit;
Form 8845, Indian Employment Credit;
and
Form 8932, Credit for Employer
Differential Wage Payments.
See the instructions for these forms for
more information.
Do not include salaries and wages
deductible elsewhere on the return, such
as amounts included in officer's
compensation, elective contributions to a
section 401(k) cash or deferred
arrangement, or amounts contributed
under a salary reduction SEP agreement
or a SIMPLE IRA plan.
If the RIC provided taxable fringe
benefits to its employees, such
CAUTION
as personal use of a car, do not
deduct as wages any amounts deducted
elsewhere.

!

Line 11. Rents. If the RIC rented or
leased a vehicle, enter the total annual
rent or lease expense paid or incurred
during the year. Also, complete Part V of
Form 4562, Depreciation and
Amortization. If the RIC leased a vehicle
for a term of 30 days or more, the
deduction for the vehicle lease expense
may have to be reduced by an amount
called the inclusion amount.
The RIC may have an inclusion amount if:
The lease term began:

And the
vehicle's FMV
on the first day
of the lease
exceeded:

Cars (excluding trucks and
vans)
After 12/31/12 but before
1/1/16 . . . . . . . . . . . . .
After 12/31/07 but before
1/1/13 . . . . . . . . . . . . .

$19,000
$18,500

Trucks and Vans
After 12/31/13 but before
1/1/16 . . . . . . . . . . . . .

$19,500

After 12/31/09 but before
1/1/14 . . . . . . . . . . . . .

$19,000

After 12/31/08 but before
1/1/10 . . . . . . . . . . . . .

$18,500

After 12/31/07 but before
1/1/09 . . . . . . . . . . . . .

$19,000

-9-

The RIC may have an inclusion amount if:
The lease term began:

And the
vehicle's FMV
on the first day
of the lease
exceeded:

If the lease term began before January 1, 2004, see Pub. 463,
Travel, Entertainment, Gift, and Car Expenses, to find out if
the RIC has an inclusion amount. The inclusion amount for
lease terms beginning in 2016 will be published in the Internal
Revenue Bulletin in early 2016.

Line 12. Taxes and licenses. Enter
taxes paid or accrued during the tax year,
but do not include the following:
Federal income taxes (except for the
tax imposed on net recognized built-in
gain allocable to ordinary income).
Foreign or U.S. possession income
taxes if a foreign tax credit is claimed, or if
the RIC made an election under section
853.
Excise taxes imposed under section
4982 on undistributed RIC income.
Taxes not imposed on the RIC.
Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes must
be treated as a part of the cost of the
acquired property or, in the case of a
disposition, as a reduction in the amount
realized on the disposition).
Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
Taxes deducted elsewhere on the
return.
See section 164(d) for information on
apportionment of taxes on real property
between seller and purchaser.
Line 13. Interest. The RIC must make an
interest allocation if the proceeds of a loan
were used for more than one purpose (for
example, to purchase a portfolio
investment and to acquire an interest in a
passive activity). See Temporary
Regulations section 1.163-8T for the
interest allocation rules.
The following interest is not deductible:
Interest on indebtedness incurred or
continued to purchase or carry obligations
if the interest is wholly exempt from
income tax. See section 265(b) for special
rules and exceptions for financial
institutions. Also see section 265(b)(7) for
a temporary de minimis exception for
financial institutions for certain tax exempt
bonds issued in 2009 and 2010.
For cash basis taxpayers, prepaid
interest allocable to years following the
current tax year. For example, a cash
basis calendar year taxpayer who in 2015
prepaid interest allocable to any period
after 2015 can deduct only the amount
allocable to 2015.

Interest and carrying charges on
straddles. Generally, these amounts must
be capitalized. See section 263(g).
Special rules apply to:
Disqualified interest on certain
indebtedness under section 163(j). See
Form 8926, Disqualified Corporate
Interest Expense Disallowed Under
Section 163(j) and Related Information,
and the related instructions.
Interest on which no tax is imposed
(see section 163(j)).
OID on certain high-yield discount
obligations. See section 163(e)(5) to
determine the amount of the deduction for
OID that is deferred and the amount that is
disallowed on a high-yield discount
obligation. The rules under section 163(e)
(5) do not apply to certain high-yield
discount obligations issued after August
31, 2008 and before January 1, 2011. See
section 163(e)(5)(F). Also, see Notice
2010-11, 2010-4 I.R.B. 326.
The deduction for interest when the RIC
is a policyholder or beneficiary with
respect to a life insurance, endowment, or
annuity contract issued after June 8, 1997.
For details, see section 264(f). Attach a
statement showing the computation of the
deduction.
Section 108(i) OID deduction. If the RIC
issued a debt instrument with OID that is
subject to section 108(i)(2) because of an
election to defer income from the
cancellation of debt (COD), the deduction
for this OID is deferred until the COD is
includible in income. The accrued OID is
allowed as a deduction ratably over the
5-year period the COD is includible in
income. The deduction is limited to the
amount of COD subject to the section
108(i) election. See section 108(i)(5)(D)
regarding any deferred COD deduction
that is allowed as a deduction in the
current year because of an accelerated
event.

!

Interest expense cannot be used
to offset interest income.

CAUTION

Line 14. Depreciation. Include on line 14
depreciation and the cost of certain
property that the RIC elected to expense
under section 179. See Form 4562 and
the related instructions to figure the
amount of depreciation to enter on this
line.
Line 22. Other deductions. Attach a
statement listing by type and amount all
allowable deductions that are not
specifically deductible elsewhere on Form
1120-RIC. Generally, a deduction may not
be taken for any amount that is allocable
to tax-exempt income. See section 265(b)
for exceptions.
Examples of other deductions include:
Amortization. See Form 4562.

Certain business start-up and
organizational costs the RIC elects to
amortize or deduct.
Supplies used and consumed in the
business.
Utilities.
Ordinary losses from trade or business
activities of a partnership (from
Schedule K-1 (Form 1065 or 1065-B)). Do
not offset ordinary income against
ordinary losses. Instead, include the
income on line 7. Show the partnership's
name, address, and EIN on a separate
statement attached to this return. If the
amount is from more than one partnership,
identify separately the amount from each
partnership.
Deduction for certain cost of energy
efficient commercial building property
placed in service during the tax year.
Any extraterritorial income exclusion
(from Form 8873, line 52).
Any net negative section 481(a)
adjustment.
Penalties or fines paid to any
government agency or
CAUTION
instrumentality because of a
violation of a law are not deductible. See
Chapter 11, Other Expenses, in Pub. 535
for additional information.

!

Charitable contributions. Enter
contributions or gifts actually paid within
the tax year to or for the use of charitable
and governmental organizations
described in section 170(c) and any
unused contribution carryovers.
RICs reporting taxable income on the
accrual method may elect to treat as paid
during the tax year any contributions paid
by the 15th day of the 3rd month after the
end of the tax year if the contributions
were authorized by the board of directors
during the tax year. Attach a declaration to
the return that includes the date the
resolution was adopted.
Limitation on deduction. The total
amount claimed cannot be more than 10%
of taxable income (the sum of Part I,
line 26; Part ll, line 3; and Form 2438,
line 11) computed without regard to the
following:
Any deduction for contributions.
The domestic production activities
deduction.
The deduction allowed under section
249, related to any premium paid or
incurred upon the repurchase of a
convertible bond.
Carryover. Charitable contributions
over the 10% limitation cannot be
deducted for the tax year but may be
carried over to the next 5 tax years subject
to certain limitations.
For more information on charitable
contributions, including substantiation and
recordkeeping requirements, see the
-10-

regulations under section 170 and Pub.
526, Charitable Contributions.
Contributions to organizations
conducting lobbying activities.
Contributions made to an organization that
conducts lobbying activities are not
deductible if:
The lobbying activities relate to matters
of direct financial interest to the donor's
trade or business, and
The principal purpose of the
contribution was to avoid federal income
tax by obtaining a deduction for activities
that would have been nondeductible
under the lobbying expense rules if
conducted directly by the donor.
For information on contributions to
charitable organizations that conduct
lobbying activities, see section 170(f)(9).
Pension, profit-sharing, etc., plans.
Enter contributions to qualified pension,
profit-sharing, or other funded-deferred
compensation plans. Employers who
maintain such a plan generally must file
Form 5500, Annual Return/Report of
Employee Benefit Plan, even if the plan is
not a qualified plan under the Internal
Revenue Code. The filing requirement
applies even if the RIC does not claim a
deduction for the current tax year. There
are penalties for failure to file these forms
on time and for overstating the pension
plan deduction. See sections 6652(e) and
6662(f).
Travel, meals, and entertainment.
Subject to certain limitations and
restrictions, the RIC can deduct ordinary
and necessary travel, meals, and
entertainment expenses incurred in its
trade or business.
Travel. The RIC cannot deduct travel
expenses of any individual accompanying
a corporate officer or employee unless:
That individual is an employee of the
RIC, and
His or her travel is for a bona fide
business purpose that would otherwise be
deductible by that individual.
Meals and entertainment.
Generally, the RIC can deduct only 50% of
the amount otherwise allowable for meals
and entertainment expenses paid or
incurred in its trade or business.
Amounts treated as compensation.
Generally, the RIC may be able to deduct
otherwise nondeductible entertainment,
amusement or recreation expenses if the
amounts are treated as compensation to
the recipient and reported on Form W-2
for an employee or on Form 1099-MISC
for an independent contractor.
However, if the recipient is an officer,
director, beneficial owner (directly or
indirectly), or other “specified individual ”
(as defined in section 274(e)(2)(B) and

Regulations section 1.274-9(b)), special
rules apply. See section 274(e)(2), and
Regulations sections 1.274-9 and
1.274-10.
See section 274 and Pub. 463 for a
more extensive discussion of these topics.
Lobbying expenses. Generally,
lobbying expenses are not deductible.
Examples of non-deductible expenses
include:
Amounts paid or incurred in connection
with influencing federal or state legislation
(but not local legislation) or
Amounts paid or incurred in connection
with any communication with certain
federal executive branch officials in an
attempt to influence the official actions or
positions of the officials. See Regulations
section 1.162-29 for the definition of
“influencing legislation.”
Dues and other similar amounts paid to
certain tax-exempt organizations may not
be deductible. See section 162(e)(3).
Certain in-house lobbying expenditures
that do not exceed $2,000 are deductible.
For more information on other
deductions that may apply to RICs, see
Pub. 535.
Line 25a. Deductions for dividends
paid. Enter the amount from Schedule A,
line 8a.
Line 25b. Section 851(d)(2) and section 851(i) deductions. Enter the
amount from Schedule J, line 2c.

Tax and Payments
Line 28b. Estimated tax payments.
Enter any estimated tax payments the RIC
made for the tax year.
Line 28f. Credit from Form 2439. Enter
the credit from Form 2439 for the RIC's
share of the tax paid by another RIC or a
Real Estate Investment Trust (REIT) on
undistributed long-term capital gains
included in the RIC's income. Attach Form
2439 to Form 1120-RIC.
Line 28g. Credit for federal tax on
fuels. Complete and attach Form 4136,
Credit for Federal Tax Paid on Fuels, if the
RIC qualifies to take this credit.
Line 28h. Refundable credit from Form
8827. If the RIC elected to claim certain
minimum tax credits instead of any
additional first-year special depreciation
allowance for eligible property, see the
instructions for Form 8827. Enter on
line 28h the amount from line 8c of Form
8827, if applicable.
The RIC must use the refundable
credits from Form 8827 to reduce
CAUTION
any built-in gains tax derived from
property that it owned when it was a C
corporation, before the credits can be
used to reduce RIC taxable income. See

!

the instructions for line h of the Built-in
Gains Tax Worksheet Instructions, later.
Line 28i. Backup withholding. If the
RIC had income tax withheld from any
payments it received, because, for
example, it failed to give the payer its
correct EIN, include the amount withheld
in the total for line 28i. Enter the amount
withheld and the words “Backup
Withholding” in the blank space above the
line 28i.
Line 29. Estimated tax penalty. A RIC
that does not make estimated tax
payments when due may be subject to an
underpayment penalty for the period of
underpayment. See the instructions for
Form 2220, Underpayment of Estimated
Tax by Corporations, for more information.
Line 30. Amount owed. If the RIC
cannot pay the full amount of tax owed, it
can apply for an installment agreement
online. The RIC can apply for an
installment agreement online if:
It cannot pay the full amount shown on
line 30,
the total amount owed is $25,000 or
less, and
the RIC can pay the liability in full in 24
months.
To apply using the Online Payment
Agreement Application, go to irs.gov.,
under “Tools,” then click on “Online
Payment Agreement”.
Under an installment agreement, the
RIC can pay what it owes in monthly
installments. There are certain conditions
that must be met to enter into and
maintain an installment agreement, such
as paying the liability within 24 months
and making all required deposits and
timely filing tax returns during the length of
the agreement.
If the installment agreement is
accepted, the RIC will be charged a fee
and it will be subject to penalties and
interest on the amount of tax not paid by
the due date of the return.

Part II — Tax on
Undistributed Net Capital
Gain Not Designated
Under Section 852(b)(3)
(D)
Line 1. Enter the net capital gain from
line 17 of Schedule D (Form 1120).
Line 2. Enter the capital gain dividends
from Schedule A, line 8b.
Line 4. Capital gains tax. Multiply the
amount on line 3 by 35% (.35). Enter the
result here and on Schedule J, line 2b.

-11-

Schedule A—Deduction
for Dividends Paid
Column (a) is used to determine the
deduction for dividends paid resulting from
income derived from ordinary dividends.
Column (b) is used to determine the
deduction for dividends paid resulting from
income derived from capital gain
dividends.
Section 561 (taking into account
sections 852(b)(7), 852(c)(3)(B), and
855(a)) determines the deduction for
dividends paid. Do not take into account
exempt-interest dividends defined in
section 852(b)(5) or any amount reported
for the tax year on Form 2438, line 9b. See
section 852(b)(8) and Regulations section
1.852-11 for definitions and information on
post-October currency or capital losses.
Line 3. Dividends, both ordinary and
capital gain, declared and payable to
shareholders of record in October,
November, or December are treated as
paid by the RIC and received by each
shareholder on December 31 of that
calendar year provided that they are
actually paid in January of the following
calendar year. Enter on line 3 all such
dividends not already included on line 1 or
2.
Line 6. Enter the foreign tax paid
deduction allowed as an addition to the
dividends paid deduction under section
853(b)(1)(B). See the instructions for Item
10 of Schedule K for information on the
election available under section 853(a).
Line 7. If the RIC elects under Section
853A to pass through credits from
qualified tax credit bonds to shareholders,
increase the dividends paid deduction by
the amount of the credits distributed to
shareholders. To make the election, see
the instructions for Item 11, under
Schedule K—Other Information.

Schedule B—Income From
Tax-Exempt Obligations
If, at the close of each quarter of the tax
year, at least 50% of the value of the
fund's assets consisted of tax-exempt
obligations under section 103(a), the RIC
qualifies under section 852(b)(5) to pay
exempt-interest dividends for the tax year.
See section 852(b)(5)(A) for the definition
of exempt-interest dividends and other
details.

In the case of a qualified “fund of funds”
structure, a RIC may pay exempt-interest
dividends without regard to the
requirement that at least 50% of the value
of the funds assets consist of tax-exempt
obligations. See section 852(g) for more
information.

If this applies, check the “Yes” box on
line 1 and complete lines 2 through 5.

Schedule J—Tax
Computation
Line 1

If the RIC is a member of a controlled
group, check the box on line 1 and
complete and attach Schedule O (Form
1120), Consent Plan and Apportionment
Schedule for a Controlled Group. See
Schedule O (Form 1120) and its
instructions for more information.

Line 2a–Tax on Investment
Company Taxable Income

Members of a controlled group must use
Schedule O (Form 1120) to figure the tax
for the group. Most corporations that are
not members of a controlled group, and do
not file a consolidated return, figure their
tax by using the Tax Rate Schedule,
below.
For a RIC that is not a personal holding company (PHC). A RIC in
compliance with Regulations section
1.852-6 regarding disclosure of the RIC's
actual stock ownership (members of a
controlled group should see the
instructions for Schedule O (Form 1120))
is not a PHC and should compute its tax
using the Tax Rate Schedule, below:

Tax Rate Schedule
If the investment company taxable
income (line 26, page 2) is:

Over—

But not over
—

Tax is:

Of the
amount
over—

$0
$50,000
15%
$0
50,000
75,000 $ 7,500 + 25%
50,000
75,000
100,000
13,750 + 34%
75,000
100,000
335,000
22,250 + 39%
100,000
335,000 10,000,000 113,900 + 34%
335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000
15,000,000 18,333,333 5,150,000 + 38% 15,000,000
18,333,333
—
35%
0

For a RIC that is a personal holding
company. A RIC that is not in compliance
with Regulations section 1.852-6 is a PHC
and is taxed at a flat rate of 35% on its
investment company taxable income.

Line 2b–Capital Gains Tax

Enter the capital gains tax from line 4, Part
II.

Line 2c—Taxes Imposed Under
Section 851(d)(2) and 851(i)
Check the appropriate box(es) and enter
the tax(es) imposed under the following
relief provisions:

Section 851(d)(2) relating to failures to
meet certain requirements of the asset
test of section 851(b)(3); and
Section 851(i) relating to failures to
meet certain requirements of the gross
income test.

exception to the anti-churning rules should
include any additional tax due in the total
for line 2e. On the dotted line to the left of
line 2e, write “Section 197” and the
amount. See section 197(f)(9)(B)(ii).

See the instructions on page 2 for
details on the requirements of the gross
income and asset tests. Also, see sections
851(d)(2) and 851(i).

To find out when a RIC can claim the
credit for payment of income tax to a
foreign country or U.S. possession, see
Form 1118, Foreign Tax
Credit—Corporations. The RIC may not
claim this credit if an election under
section 853 was made for the tax year.
See Election under section 853(a), under
Schedule K, Item 10.

Attach a statement showing the
computation of the tax(es) and an
explanation of why the RIC failed to meet
the requirement of the asset test or the
gross income test and a description of
why such failure is due to reasonable
cause and not to willful neglect.

Line 2d–Alternative Minimum
Tax (AMT)

Unless the RIC is treated as a small
corporation exempt from the AMT, it may
owe the AMT if it has any of the
adjustments and tax preference items
listed on Form 4626, Alternative Minimum
Tax—Corporations. The RIC must file
Form 4626 if its investment company
taxable income (or loss), and retained
capital gains not designated under section
852(b)(3)(D), plus adjustments and tax
preference items, is more than the smaller
of:
$40,000, or
The RIC's allowable exemption amount
(from Form 4626).
See Form 4626 for definitions and
details on how to figure the tax.
Apportioning tax preference items.
Items of tax preference may be
apportioned by the RIC between the entity
and its shareholders in accordance with
section 59(d)(1)(A).

Line 2e–Income Tax
Deferred tax under section 1291. If the
RIC was a shareholder in a passive
foreign investment company (PFIC), and
received an excess distribution or
disposed of its investment in the PFIC
during the year, it must include the
increase in taxes due under section
1291(c)(2) (from Form 8621) in the total
for line 2e. On the dotted line to the left of
line 2e write “Section 1291” and the
amount.
Do not include on line 2e any interest
due under section 1291(c)(3). Instead,
include the amount owed on Schedule J,
line 6, other taxes.
For more information on reporting the
deferred tax and interest, see the
Instructions for Form 8621.
Additional tax under section 197(f). A
RIC that elects to recognize gain and pay
tax on the gain from the sale of a section
197 intangible under the related person
-12-

Line 3a– Foreign Tax Credit

Line 3b–Credit from Form 8834

Enter any qualified electric vehicle passive
activity credits from prior years allowed for
the current tax year from Form 8834,
Qualified Electric Vehicle Credit, line 7 and
attach Form 8834 to this return.

Line 3c–General Business
Credit

The RIC is required to file Form 3800,
General Business Credit, to claim most
business credits. For a list of allowable
credits, see Form 3800. Enter the
allowable credit from Part II, line 38, of
Form 3800, on line 3c. Also, see the
applicable credit form and its instructions.

Line 3d–Other Credits
Minimum tax credit. To figure the
minimum tax credit and any carryforward
of that credit, use Form 8827, Credit for
Prior Year Minimum Tax—Corporations.
Bond credits from Form 8912. Enter
the allowable credits from Form 8912,
Credit to Holders of Tax Credit Bonds,
line 12. However, if the RIC elects to pass
through credits from tax credit bonds to its
shareholders, it cannot take the credit.
See Item 11 under question 5 later for
more information.

Line 5– Personal Holding
Company Tax

A RIC is taxed as a personal holding
company under section 542 if:
At least 60% of its adjusted ordinary
gross income for the tax year is personal
holding company income, and
At any time during the last half of the tax
year more than 50% in value of its
outstanding stock is owned, directly or
indirectly, by five or fewer individuals.
See the Instructions for Schedule PH
(Form 1120), U.S. Personal Holding
Company (PHC) Tax, for definitions and
details on how to figure the tax.

Line 6–Other Taxes

Include any of the following taxes and
interest in the total on line 6. Check the

appropriate box(es) for the form, if any,
used to compute the total.

as a RIC or the day it acquired the
property.

Recapture of investment credit. If the
RIC disposed of investment credit
property or changed the property's use
before the end of its useful life or recovery
period, it may owe a tax. See Form 4255,
Recapture of Investment Credit, for
details.

Recognized built-in gains and losses
generally retain their character (for
example, ordinary income or capital gain)
and are treated the same as other gains or
losses of the RIC. The RIC's tax on net
recognized built-in gain is treated as a loss
sustained by the RIC after October 31 of
the same tax year (see the instructions for
line i of the Built-in Gains Tax Worksheet,
later). See Regulations section 1.337(d)-7
for details.

Recapture of low-income housing
credit. If the RIC disposed of property (or
there was a reduction in the qualified basis
of the property) for which it took the
low-income housing credit and the RIC did
not follow the procedures that would have
prevented recapture of the credit, it may
owe a tax. See Form 8611, Recapture of
Low-Income Housing Credit, and IRC
section 42(j)(1) for more information.
Other. Additional tax and interest
amounts can be included in the total
entered on line 6. Check the box for
“Other” if the RIC includes any of the taxes
and interest discussed below. See How to
report, below, for details on reporting
these amounts on an attached statement.
Recapture of qualified electric vehicle
(QEV) credit. The RIC must recapture part
of the QEV credit it claimed in a prior year
if, within 3 full years of the date the vehicle
was placed in service, it ceases to qualify
for the credit. See Regulations section
1.30-1 for details on how to figure the
recapture.
Recapture of Indian employment credit.
Generally, if an employer terminates the
employment of a qualified employee less
than 1 year after the date of initial
employment, any Indian employment
credit allowed for a prior tax year because
of wages paid or incurred to that employee
must be recaptured. For details, see Form
8845 and section 45A.
Recapture of new markets credit (see
Form 8874 and Regulations section
1.45D-1(e) for details).
Recapture of employer-provided
childcare facilities and services credit (see
Form 8882 and section 45F(d) for details).
Interest due on deferred gain
recognition (section 1260(b)).
Interest due under section 1291(c)(3).

Built-in Gains Tax
If, on or after January 2, 2002, property of
a C corporation becomes property of a
RIC by either: (a) the qualification of the C
corporation as a RIC; or (b) the transfer of
such property to a RIC, then the RIC will
be subject to the built-in gains tax under
section 1374 unless the C corporation
elects deemed sale treatment on the
transferred property. If the C corporation
does not make this election for tax years
beginning in 2015, the RIC must pay tax
on the net recognized built-in gain during
the 5-year period beginning on its first day

Different rules apply to elections to be a
RIC and to transfers of property in a
carryover basis transaction that occurred
prior to January 2, 2002. For RIC elections
and property transfers before this date, the
C corporation is subject to deemed sale
treatment on the transferred property
unless the RIC elects section 1374
treatment. See Regulations section
1.337(d)-6 for information on how to make
the election and figure the tax for RIC
elections and property transfers before
this date. The RIC may also rely on
Regulations section 1.337(d)-5 for RIC
elections and property transfers that
occurred before January 2, 2002.

Built-in Gains Tax Worksheet
Instructions
Complete the worksheet below to figure
the built-in gains tax under Regulations
section 1.337(d)-6 or 1.337(d)-7.
Line a. Enter the amount that would be
the taxable income of the RIC for the tax
year if only recognized built-in gain,
recognized built-in loss, and recognized
built-in gain carryover were taken into
account.
Line b. Add the amounts shown on:
Form 1120-RIC, page 1, line 24,
Form 1120-RIC, Part II, line 1, and
Form 2438, line 11.
For this purpose, refigure line 24 on
page 1 without regard to any election
under section 852(b)(2)(F). Enter the
result on line b of the Built-in Gains Tax
Worksheet on the next page.
Line c. The RIC's net unrealized built-in
gain is the amount, if any, by which the
FMV of the assets of the RIC at the
beginning of its first RIC year (or as of the
date the assets were acquired, for any
asset with a basis determined by
reference to its basis (or the basis of any
other property) in the hands of a C
corporation) exceeds the aggregate
adjusted basis of such assets at that time.
Enter on line c the RIC's net unrealized
built-in gain reduced by the net recognized
built-in gain for prior years. See sections
1374(c)(2) and (d)(1).
-13-

Line d. If the amount on line b exceeds
the amount on line a, the excess is treated
as a recognized built-in gain in the
succeeding tax year.
Line e. Enter the section 1374(b)(2)
deduction. Generally, this is any net
operating loss or capital loss carryforward
(to the extent of net capital gain included
in recognized built-in gain for the tax year)
arising in tax years for which the RIC was
a C corporation. A capital loss
carryforward must be used to reduce
recognized built-in gain for the tax year to
the greatest extent possible before it can
be used to reduce the RIC's taxable
income.
Line h. Credit carryforwards arising in tax
years for which the RIC was a C
corporation must be used to reduce the
tax on net built-in gain for the tax year to
the greatest extent possible before the
credit carryforwards can be used to
reduce the tax on the RIC's taxable
income.
Note. If the RIC makes the election,
the unused research and minimum tax
credits must first be used to reduce the tax
on net built-in gain for the tax year to the
greatest extent possible. Any remaining
unused research and minimum tax credits
are included on line 28h to reduce the
RIC's income tax. For more information,
see the instructions for line 28h.
Line i. The RIC's tax on the net
recognized built-in gain is treated as a loss
sustained by the RIC after October 31 of
the same tax year. Deduct the tax
attributable to:
Ordinary gain as a deduction for taxes
on Form 1120-RIC, line 12.
Short-term capital gain as a short-term
capital loss in Part I of Form 8949.
Long-term capital gain as a long-term
capital loss in Part II of Form 8949.

How to Report
If the RIC checked the “Other” box, enter
the tax or interest on line 6, Schedule J.
Also, attach a statement, showing the
computation of each item included in the
total for line 6, and identify (a) the type of
tax or interest, and (b) the applicable
Code section.

Line 7–Total Tax

Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 7. See Form 8621 and How to report,
below.
Subtract from the total for line 7 the
deferred tax on the RIC's share of the
undistributed earnings of a qualified
electing fund (see Form 8621).

Built-in Gains Tax Worksheet (keep for your records)
a.

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . .

b.

Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c.
d.

Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior
years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . .

e.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

f.

Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . .

g.

Enter 35% of line f

h.

Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation
(see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.
Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6 of
Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

i.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How to report
Attach a statement showing the
computation of each item included in, or
subtracted from, the total for line 7. On the
dotted line next to line 7, enter the amount
of tax or interest, identify it as tax or
interest, and specify the Code section that
applies.

Schedule K–Other
Information

The following instructions apply to
questions 1 through 11. Complete all
items that apply.

Question 3

Check the “Yes” box if the RIC is a
subsidiary in a parent-subsidiary
controlled group. This applies even if the
RIC is a subsidiary member of one group
and the parent corporation of another.
Note. If the RIC is an “excluded member”
of a controlled group (see section 1563(b)
(2)), it is still considered a member of a
controlled group for this purpose.

Question 5

Check the “Yes” box if one foreign person
owned at least 25% of (a) the total voting
power of all classes of stock of the RIC
entitled to vote or (b) the total value of all
classes of stock of the RIC.
The constructive ownership rules of
section 318 apply in determining if a RIC is
foreign owned. See section 6038A(c)(5)
and the related regulations.
Enter on line 5b(1) the percentage
owned by the foreign person specified in
question 5. For line 5b(2), enter the name
of the owner's country.
Note. If there is more than one
25%-or-more foreign owner, complete
lines 5b(1) and 5b(2) for the foreign
person with the highest percentage of
ownership.

Foreign person. The term “foreign
person” includes:
A foreign citizen or nonresident alien.
An individual who is a citizen or resident
of a U.S. possession (but who is not a
U.S. citizen or resident).
A foreign partnership.
A foreign corporation.
Any foreign estate or trust within the
meaning of section 7701(a)(31).
A foreign government (or one of its
agencies or instrumentalities) to the extent
that it is engaged in the conduct of a
commercial activity as described in
section 892.
Owner's country. For individuals, the
term “owner's country” means the country
of residence. For all others, it is the
country where incorporated, organized,
created, or administered.
Requirement to file Form 5472. If the
RIC checked “Yes,” it may have to file
Form 5472, Information Return of a 25%
Foreign Owned U.S. Corporation or a
Foreign Corporation Engaged In a U.S.
Trade or Business. Generally, a 25%
foreign-owned corporation that had a
reportable transaction with a foreign or
domestic related party during the tax year
must file Form 5472. See Form 5472 for
filing instructions.

Item 8
Tax-exempt interest. Show any
tax-exempt interest received or accrued.
Include any exempt-interest dividends
received as a shareholder in a mutual fund
or other RIC.

Item 10
Election under section 853(a). A RIC
may make an irrevocable election under
section 853(a) to allow its shareholders to
apply their share of the foreign taxes paid
by the RIC either as a credit or a
deduction. If the RIC makes this election,
the amount of foreign taxes it paid during
the tax year may not be taken as a credit
-14-

a.
b.
c.
d.
e.
f.
g.

or a deduction on Form 1120-RIC, but
may be claimed on Form 1120-RIC,
Schedule A, line 5, as an addition to the
dividends-paid deduction.
Eligibility. To qualify to make the
election, the RIC must meet the following
requirements.
More than 50% of the value of the RIC's
total assets at the end of the tax year must
consist of stock or securities in foreign
corporations.
The RIC must meet the holding period
requirements of section 901(k) with
respect to its common and preferred
stock. If the RIC fails to meet these
holding period requirements, the election
that allows a RIC to pass through to its
shareholders the foreign tax credits for
foreign taxes paid by the RIC is
disallowed. Although the foreign taxes
paid may not be taken as a credit by either
the RIC or the shareholder, they are still
deductible at the fund level.
Election under section 852(g). In the
case of a qualified “fund of funds”
structure, a RIC may elect to allow
shareholders the foreign tax credit without
regard to the requirement that more than
50% of the value of its assets consist of
stock or securities in foreign corporations.
See section 852(g) for more information.
Reporting requirements. To make a
valid election under section 853 or 852(g),
in addition to timely filing Form 1120-RIC
and checking the box for Schedule K, item
10a or b, the RIC must file a statement of
election, which includes the information
listed under Regulations section
1.853-4(c). The information must be
provided on or with a Form 1118, Foreign
Tax Credit, attached to the RIC's timely
filed tax return.
For more information, see Regulations
section 1.853-4.
Notification to shareholders. If the
RIC makes the election, it must furnish to
its shareholders a written notice

designating the shareholder's portion of
(1) foreign taxes paid by the RIC to foreign
countries and possessions of the United
States, and (2) the dividend that
represents income derived from:
sources within countries described in
section 901(j), and
other foreign-source income.
The notice must be mailed to the
shareholders no later than 60 days after
the end of the RIC's tax year. For more
information, see Regulations section
1.853-3.

Item 11
Election under section 853A. A RIC
can elect to pass through credits from tax
credit bonds to its shareholders. If the RIC
makes the election, include the interest
income from the tax credit bonds on Part I,
line 2. Also, increase the dividends paid
deduction by the amount of the credits
distributed to shareholders. If the RIC
makes the election, it is not allowed to
take any credits related to the qualified tax
credit bonds.
For more information, see section
853A.
Notification to shareholders. If the
RIC makes the election to apply section
853A, it must furnish to its shareholders a
written notice designating the
shareholder's proportionate share of: (1)
credits from tax credit bonds, and (2)
gross income in respect of such credits.
The notice must be mailed to the
shareholders no later than 60 days after
the end of the RIC's tax year.

Schedule L–Balance
Sheets per Books

The balance sheets should agree with the
RIC's books and records.
Line 1. Cash. Include certificates of
deposit as cash on line 1.
Line 4. Tax-exempt securities. Include
on this line:

1. State and local government
obligations, the interest on which is
excludible from gross income under
section 103(a), and
2. Stock in another mutual fund or RIC
that distributed exempt-interest dividends
during the tax year of the RIC.
Line 24. Adjustments to shareholders'
equity. Examples of adjustments to
report on this line include:
Unrealized gains and losses on
securities held “available for sale.”
Foreign currency translation
adjustments.
The excess of additional pension
liability over unrecognized prior service
cost.
Guarantees of employee stock (ESOP)
debt.
Compensation related to employee
stock award plans.
If the total adjustment to be entered on
line 24 is a negative amount, enter the
amount in parentheses.

Schedule M–1
Reconciliation of Income (Loss)
per Books With Income per
Return
Line 5d. Travel and entertainment.
Include on line 5d any of the following:
Meals and entertainment not deductible
under section 274(n).
Expenses for the use of an
entertainment facility.
The part of business gifts over $25.
Expenses of an individual over $2,000,
which are allocable to conventions on
cruise ships.
Employee achievement awards over
$400.
The cost of entertainment tickets over
face value (also subject to the 50% limit
under section 274(n)).
The cost of skyboxes over the face
value of nonluxury box seat tickets.

-15-

The part of luxury water travel not
deductible under section 274(m).
Expenses for travel as a form of
education.
Other nondeductible travel and
entertainment expenses.
For more information, see Pub. 542,
Corporations.
Line 7. Tax-exempt interest. Include as
interest on line 7 any exempt-interest
dividends received by the RIC as a
shareholder in a mutual fund or other RIC.
Paperwork Reduction Act Notice. We
ask for the information on this form to carry
out the Internal Revenue laws of the
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the information. We need it to ensure that
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Instead, see Where to File, earlier.