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2021
Department of the Treasury
Internal Revenue Service
Instructions for Form
1120-RIC
DRAFT AS OF
December 2, 2021
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 . . . . . . . . .
Where To File . . . . . . . . . . . . .
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 . . . . . . . . . . . . .
Nov 30, 2021
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Future Developments
understands their rights under the
Taxpayer Bill of Rights.
What’s New
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; or
• The RIC has tried repeatedly to
contact the IRS but no one has
responded, or the IRS hasn't
responded by the date promised.
For the latest information about
developments related to Form
1120-RIC and its instructions, such as
legislation enacted after this form and
instructions were published, go to
IRS.gov/Form1120RIC.
Credit for qualified sick and family
leave wages. The American Rescue
Plan Act of 2021 (the ARP) provided
credits for qualified sick and family
leave wages similar to the credits that
were previously enacted under the
Families First Coronavirus Response
Act (FFCRA) and amended and
extended by the COVID-related Tax
Relief Act of 2020. See the
Instructions for Form 941.
Employee retention credit. Recent
legislation modified the applicability of
the employee retention credit. The
credit now applies to qualified wages
paid before October 1, 2021 (or, in the
case of wages paid by an eligible
employer that is a recovery startup
business, before January 1, 2022).
Photographs of Missing
Children
The Internal Revenue Service is a
proud partner with the National Center
for Missing & Exploited Children®
(NCMEC). 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
Cat. No. 64251J
The TAS toolkit at
TaxpayerAdvocate.IRS.gov can help
the RIC understand these rights.
TAS has offices in every state, the
District of Columbia, and Puerto Rico.
Local advocates' numbers are in their
local directories and at
TaxpayerAdvocate.IRS.gov. The RIC
can also call TAS at 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
IRS.gov/SAMS.
For more information, go to
IRS.gov/Advocate.
How To Get Forms
and Publications
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
IRS.gov/FormsPubs.
Otherwise, the RIC can go to
IRS.gov/OrderForms to place an
order and have forms mailed to it. The
IRS will process your order for forms
and publications as soon as possible.
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 (other
than a qualified publicly traded
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.
• 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;
and
• The RIC disposes of the assets set
forth on the statement (or the
requirements of section 851(b)(3) are
otherwise met) 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 million.
• The RIC disposes of the asset
following the identification of the
failure (or the requirements of section
851(b)(3) are otherwise met) within 6
months after the last day of the
DRAFT AS OF
December 2, 2021
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.
Qualified opportunity funds. To be
certified as a qualified opportunity
fund, the corporation must file Form
1120-RIC and attach Form 8996,
even if the corporation had no income
or expenses to report. See
Schedule K, Question 15. Also, see
the Instructions for Form 8996.
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).
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;
-2-
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 sections
851(d)(2) and 851(i).
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:
• 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).
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:
And the total assets at
the end of the tax year
are:
Use the following address:
DRAFT AS OF
December 2, 2021
A RIC that does not satisfy the
distribution requirements will
CAUTION be subject to taxation as a C
corporation.
!
Connecticut, Delaware, District
of Columbia, 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
Less than $10 million and
Schedule M-3 is not filed
Department of the Treasury
Internal Revenue Service
Kansas City, MO
64999-0012
$10 million or more or
Schedule M-3 is filed
Department of the Treasury
Internal Revenue Service
Ogden, UT
84201-0012
Any amount
Department of the Treasury
Internal Revenue Service
Ogden, UT
84201-0012
Alabama, Alaska, Arizona,
Arkansas, California,
Colorado, Florida, Hawaii,
Idaho, Iowa, Kansas,
Louisiana, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Mexico, North Dakota,
Oklahoma, Oregon, South
Dakota, Texas, Utah,
Washington, Wyoming
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.
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.
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.
However, a RIC with a fiscal tax
year ending June 30 must file by the
15th day of the 3rd month after the
end of its tax year. A RIC with a short
tax year ending anytime in June will
be treated as if the short year ended
on June 30, and must file by the 15th
day of the 3rd month after the end of
its tax year.
Definition of a Fund
If the due date falls on a Saturday,
Sunday, or legal holiday, the RIC may
file its return on the next business day.
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 4th
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 4th month after the short period
ends. A RIC that has dissolved must
generally file by the 15th day of the
4th month after the date of dissolution.
Private Delivery Services
RICs can use certain private delivery
services (PDS) designated by the IRS
to meet the “timely mailing as timely
filing” rule for tax returns. Go to
IRS.gov/PDS for the current list of
designated services.
The PDS can tell you how to get
written proof of the mailing date.
For the IRS mailing address to use
if you're using PDS, go to IRS.gov/
PDSstreetAddresses.
-3-
Private delivery services can't
deliver items to P.O. boxes.
CAUTION You 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 an 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
a 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.
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.
The authorization will automatically
end no later than the due date
(excluding extensions) for filing the
RIC's 2022 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.
line 31. 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
DRAFT AS OF
December 2, 2021
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
TIP original or amended returns
by rubber stamp, mechanical
device, or computer software
program.
Paid Preparer
Authorization
If the RIC wants to allow the IRS to
discuss its 2021 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.
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. Form 8949.
4. Form 4136.
5. Form 8948.
6. Form 965-B.
7. Form 8941.
8. Form 3800.
9. Form 8997.
10. Additional schedules in
alphabetical order.
11. Additional forms in numerical
order.
12. 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 due date
for filing its tax return (not including
extensions). See the instructions for
-4-
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
EFTPS.gov, or call 800-555-4477
(TTY/TDD 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 learn more about the
information the RIC will need to
provide its financial institution to make
a same-day wire payment, go to
IRS.gov/SameDayWire.
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.
RIC can show that the failure to pay
on time was due to reasonable cause.
• Any other method authorized by the
Internal Revenue Code.
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.
For more information, see Pub.
538, Accounting Periods and
Methods.
Accrual method. Generally, a RIC
must use the accrual method of
accounting if its average annual gross
receipts for the prior 3 years exceed
$26 million. See section 448(c).
DRAFT AS OF
December 2, 2021
For more information, including
penalties, see the instructions for
line 30, 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 $435. 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 may
generally 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
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.
Note. The trust fund recovery penalty
will not apply to any amount of trust
fund taxes an employer holds back in
anticipation of the credit for qualified
sick and family leave wages or the
employee retention credit that they
are entitled to. See Pub. 15 or Pub. 51
for more information.
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
-5-
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 for income tax purposes. To
obtain consent, the RIC must file Form
3115, Application for Change in
Accounting Method, during the tax
year for which the change is
requested. See the Instructions for
Form 3115 and Pub. 538 for more
information and exceptions.
Accounting Periods
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.
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
the reporting requirements of section
6038 or 6046, and the related
regulations.
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.
DRAFT AS OF
December 2, 2021
Change of tax year. Generally, a
RIC must receive consent from the
IRS before 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
The RIC may enter decimal points
and cents when completing its return.
However, the RIC should round off
cents to whole dollars on its return,
forms, and schedules to make
completing its return easier. The RIC
must either round off all amounts on
its return to whole dollars, or use
cents for all amounts. To round, drop
amounts under 50 cents and increase
amounts from 50 to 99 cents to the
next dollar. For example, $8.40
rounds to $8 and $8.50 rounds to $9.
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
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 deduction
under section 860.
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.
Form 1099-DIV, Dividends and
Distributions. Report certain dividends
and distributions.
Form 1099-INT, Interest Income.
Report interest income.
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 5471, Information Return of
U.S. Persons With Respect To
Certain Foreign Corporations. Use
Form 5471 if the RIC is a U.S.
shareholder of a controlled foreign
corporation, a specified foreign
corporation, or otherwise subject to
-6-
Form 8621, Information Return by a
Shareholder of a Passive Foreign
Investment Company or Qualified
Electing Fund. Use Form 8621 if the
RIC is a direct or indirect shareholder
of a passive foreign investment
company, as defined in section
1297(a).
Form 8927, Determination Under
Section 860(e)(4) by a Qualified
Investment Entity. Use Form 8927 to
make a determination under section
860(e)(4) for purposes of paying
deficiency dividends.
Form 8975, Certain U.S. persons
that are the ultimate parent entity of a
U.S. multinational enterprise group
with annual revenue for the preceding
reporting period of $850 million or
more are required to file Form 8975.
Form 8975 and Schedule A (Form
8975) must be filed with the income
tax return of the ultimate parent entity
of a U.S. multinational enterprise
group for the tax year in or within
which the reporting period covered by
Form 8975 ends. For more
information, see Form 8975,
Schedule A (Form 8975) and the
Instructions for Form 8975 and
Schedule A (Form 8975).
Form 8990, Limitation on Business
Interest Expense Under Section
163(j). Use Form 8990 to calculate the
amount of business interest expense
the RIC can deduct and the amount to
carry forward to the next year.
Form 8992, U.S. Shareholder
Calculation of Global Intangible
Low-Taxed Income (GILTI). Use Form
8992 to figure the domestic
corporation's GILTI under section
951A and attach it to Form 1120-RIC.
Form 8996, Qualified Opportunity
Fund. Use Form 8996 to certify that
the RIC is organized as a qualified
opportunity fund (QOF) to invest in
qualified opportunity zone property. In
addition, a QOF RIC files Form 8996
annually to report that it meets the
90% investment standard of section
1400Z-2 or to compute the penalty if it
fails to meet the investment standard.
Form 8997, Initial and Annual
Statement of Qualified Opportunity
Fund (QOF) Investments. Use Form
8997 to report investments in one or
more QOFs. Report the amount of
deferred gains invested in QOFs at
the beginning of the current tax year,
transactions related to investments in
QOFs for the current tax year, which
include capital gains deferred and
invested in QOFs and dispositions of
investments in QOFs, and the amount
of deferred gains invested in QOFs at
the end of the current tax year.
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.
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.
DRAFT AS OF
December 2, 2021
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
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 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
-7-
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).
Certain dividends. A dividend
received from a RIC is taken into
account in computing (a) the
deduction under section 243, or (b)
qualified dividend income, only to the
extent reported by the RIC as eligible
for such deduction or such treatment
in written statements furnished to its
shareholders. A RIC must determine
the reportable amounts under section
854(b). 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 election to close its books at
the end of each month. See Rev.
Proc. 2003-84, 2003-48 I.R.B. 1159,
as modified by Notice 2008-80, for
details.
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.
the RIC has a P.O. box, show the box
number instead.
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.
DRAFT AS OF
December 2, 2021
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; and
• 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
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 2021 return for calendar year
2021 and fiscal years that begin in
2021 and end in 2022. For a fiscal
year return, fill in the tax year in the
space at the top of the form.
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.
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 by visiting IRS.gov/EIN. The
EIN is issued immediately once the
application information is validated; or
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
The 2021 Form 1120-RIC may also
be used if:
• The RIC has a tax year of less than
12 months that begins and ends in
2022; and
• The 2022 Form 1120-RIC is not
available at the time the RIC is
required to file its return.
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.
The RIC must show its 2022 tax
year information on the 2021 Form
1120-RIC and take into account any
tax law changes that are effective for
tax years beginning after 2021.
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-.
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
-8-
Item D. Total Assets
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
change to an “in care of” address),
check the “Address change” box.
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.
Form 8992, and their instructions, to
determine the amount included in
gross income under section 951(a)(1)
(A) (including the amount of global
intangible low-taxed income) and
section 1293(a). Also, consider the
applicability of section 951A with
respect to controlled foreign
corporations owned by domestic
partnerships in which the RIC has an
interest.
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)). 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
DRAFT AS OF
December 2, 2021
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.
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.
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
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 carry over 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.
If the RIC owns any controlled
foreign corporations or qualified
electing funds, enter the amount
included in gross income under
section 951(a)(1)(A), plus the amount
of global intangible low-taxed income
determined under section 951A
(which is treated as an amount
included under section 951(a)(1)(A)),
and any amount included in gross
income under section 1293(a). See
Regulations section 1.851-2(b)(2)(iii).
Do not include in this line any
amounts that are treated as dividends
and reported on line 1. See
Regulations section 1.851-2(b)(2)(i).
Refer to Form 5471, Form 8621, and
-9-
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;
• 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. The amount of excess
distributions from a Section 1291 fund
that is treated as ordinary income.
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.
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).
DRAFT AS OF
December 2, 2021
See Form 8621 and the
Instructions for Form 8621 for details;
and
• The amount of payroll tax credit
taken by an employer on its
employment tax returns (Forms 941,
943, and 944) for qualified paid sick
and qualified paid family leave under
FFCRA and ARP (both the
nonrefundable and refundable
portions). These amounts must be
included in gross income for the tax
year that includes the last day of the
calendar quarter in which the credit is
allowed.
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.
Limitations on business interest
expense. Business interest expense
may be limited. See section 163(j) and
Form 8990, Limitation on Business
Interest Expense Under Section
163(j). Also, see Limitation on
deduction in the instructions for
line 13 and Schedule K, Question 14,
later.
Golden parachute payments. A
portion of the payments made by a
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 must
generally be amortized over a
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.
-10-
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, complete and
attach Form 1125-E. Total receipts
are figured by adding:
1. Line 8, Part I;
2. Net capital gain from line 1, Part
II; and
3. Line 9a, Form 2438.
Enter on line 9 the amount from
Form 1125-E, line 4.
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;
• Form 8932, Credit for Employer
Differential Wage Payments; and
• Form 8994, Employer Credit for
Paid Family and Medical Leave.
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.
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 12/31/20 but before
1/1/22 . . . . . . . . . . . . .
After 12/31/12 but before
1/1/18 . . . . . . . . . . . . .
After 12/31/07 but before
1/1/13 . . . . . . . . . . . . .
following amounts claimed on its
employment tax returns: (1) the
nonrefundable and refundable
portions of the CARES Act employee
retention credit, and (2) the
nonrefundable and refundable
portions of the FFCRA and ARP
credits for qualified sick and family
leave wages. Instead, item (1)
reduces the deductions for
compensation of officers and salaries
and wages on lines 9 and 10, and
item (2) must be reported as income
on line 7.
DRAFT AS OF
December 2, 2021
If the RIC provided taxable
fringe benefits to its
CAUTION employees, such as personal
use of a car, do not deduct as wages
any amounts deducted elsewhere.
!
Also, reduce the amounts
deducted as compensation of
CAUTION officers and salaries and
wages by the nonrefundable and
refundable portions for the CARES
Act employee retention credit claimed
on the RIC's employment tax
return(s).
!
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.
$51,000
$19,000
$18,500
Trucks and Vans
After 12/31/20 but before
1/1/22 . . . . . . . . . . . . .
$51,000
After 12/31/13 but before
1/1/18 . . . . . . . . . . . . .
$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
See Pub. 463, Travel, Gift, and Car Expenses, for instructions
on figuring the inclusion amount. The inclusion amount for
lease terms beginning in 2022 will be published in the Internal
Revenue Bulletin in early 2022.
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.
!
CAUTION
Do not reduce the RIC's
deduction for social security
and Medicare taxes by the
-11-
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 2021 prepaid interest allocable
to any period after 2021 can deduct
only the amount allocable to 2021.
• Interest and carrying charges on
straddles. Generally, these amounts
must be capitalized. See section
263(g).
Special rules apply to:
• Original issue discount (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.
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)). 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;
• Any extraterritorial income
exclusion (from Form 8873, line 52);
• Any net negative section 481(a)
adjustment; and
• Any applicable deduction under
section 179D for costs of energy
efficient commercial building property.
Do not deduct expenses such as
the following.
• Fines or penalties paid to a
government for violating any law.
However, other limitations apply for
certain amounts paid or incurred after
December 21, 2017. See section
162(f), and Fines and penalties, later.
• Lobbying expenses. However, see
Lobbying expenses, later.
• Amounts paid or incurred after
December 22, 2017, for any
settlement or payment related to
sexual harassment or sexual abuse, if
such settlement or payment is subject
to a nondisclosure agreement or for
related attorney's fees. See new
section 162(q).
the resolution authorizing the
contributions was adopted by the
board of directors during the tax year.
The declaration must include the date
the resolution was adopted. See
section 170(a)(2)(B).
Limitation on deduction.
Generally, 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 deduction allowed under
section 249, related to any premium
paid or incurred upon the repurchase
of a convertible bond.
DRAFT AS OF
December 2, 2021
Limitation on deduction. Under
section 163(j), business interest
expense is generally limited to the
sum of business interest income, an
applicable percentage of the adjusted
taxable income, and floor plan
financing interest. Business interest
expense includes any interest paid or
accrued properly allocable to a trade
or business (other than certain
excepted trades or businesses). A
small business taxpayer, that is not a
tax shelter (as defined in section
448(d)(3)), and that meets the gross
receipts test is not required to limit
business interest expense under
section 163(j). A taxpayer meets the
gross receipts test if the taxpayer has
average annual gross receipts of not
more than $26 million for the 3 prior
tax years under the gross receipts test
of section 448(c). Gross receipts
include the aggregate gross receipts
from all persons treated as a single
employer such as a controlled group
of corporations, commonly controlled
partnerships or proprietorships, and
affiliated service groups. If the
corporation fails to meet the gross
receipts test, Form 8990 is generally
required. See the Instructions for
Form 8990. Also, see Schedule K,
Questions 13 and 14 for conditions for
filing Form 8990.
!
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.
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 due date of
the RIC’s tax return (not including
extensions) if the contributions were
authorized by the board of directors
during the tax year. Attach a
declaration to the return stating that
-12-
Carryover. Charitable
contributions over the 10% limitation
(or the 25% limitation, if elected; see
Temporary suspension of limitations
on certain contributions, below)
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 regulations under section 170 and
Pub. 526, Charitable Contributions.
Temporary suspension of
limitations on certain
contributions. The CARES Act
allows a RIC to elect to deduct
qualified cash contributions without
regard to the 10% taxable income
limit. For 2021, qualified contributions
are charitable contributions that were
made during calendar year 2021 to an
organization described in section
170(b)(1)(A) (other than certain
private foundations described in
section 509(a)(3) or donor-advised
funds described in section 4966(d)
(2)). The total amount of the
contribution claimed cannot exceed
25% of the excess of the corporation's
taxable income (as computed above
substituting “25%” for “10%” ) over all
other allowable charitable
contributions. Contributions over the
25% limitation cannot be deducted for
the tax year but can be carried over to
the next 5 years.
Temporary suspension of 10%
limitation for certain
disaster-related contributions. A
RIC may elect to deduct qualified
cash contributions without regard to
the 10% taxable income limit. For
2021, qualified contributions are any
charitable contributions that were
made before February 26, 2021, to an
organization described in section
170(b)(1)(A) (other than certain
private foundations described in
section 509(a)(3) or donor-advised
funds described in section 4966(d)(2))
for relief efforts in one or more
qualified disaster areas. The RIC must
obtain contemporaneous written
acknowledgment (within the meaning
of section 170(f)(8)) from the qualified
charitable organization that the
contribution was used or is to be used
for disaster relief efforts.
The total amount of the contribution
claimed for disaster relief efforts
cannot exceed 100% of the excess of
the RIC's taxable income (as
computed above substituting "100%"
for "10%" ) over all other allowable
charitable contributions. Any excess
qualified contributions are carried over
to the next 5 years.
Travel, meals, and entertainment.
Subject to certain limitations and
restrictions, the RIC can deduct
ordinary and necessary travel, meal,
and non-entertainment expenses paid
or incurred in its trade or business.
Generally, entertainment
expenses, membership dues, and
facilities used in connection with these
activities cannot be deducted. In
addition, no deduction is generally
allowed for qualified transportation
fringe benefits. Also, special rules
apply to deductions for gifts, luxury
water travel, and convention
expenses. See section 274, Pub. 463,
and Pub. 535 for more details.
employee's residence and place of
employment,
• Any transit pass, and
• Qualified parking.
See section 274, Pub. 15-B, and
Pub. 535 for details.
Membership dues. The RIC can
deduct amounts paid or incurred for
membership dues in civic or public
service organizations, professional
organizations (such as bar or medical
associations), business leagues,
trade associations, chambers of
commerce, boards of trade, and real
estate boards. However, no deduction
is allowed if a principal purpose of the
organization is to entertain or provide
entertainment facilities to members or
their guests. In addition, RICs cannot
deduct membership dues in any club
organized for business, pleasure,
recreation, or other social purpose.
This includes country clubs, golf and
athletic clubs, airline and hotel clubs,
and clubs operated to provide meals
under conditions favorable to
business.
DRAFT AS OF
December 2, 2021
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
must generally 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. 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. Generally, the RIC can
deduct only 50% of the amount
otherwise allowable for
non-entertainment related meal
expenses paid or incurred in its trade
or business. However, the RIC can
deduct 100% of the business meal
expenses if the meals are food and
beverages provided by a restaurant.
This applies only to amounts incurred
after December 31, 2020, and before
January 1, 2023.
Meals not separately stated from
entertainment are generally not
deductible. In addition (subject to
exceptions under section 274(k)(2)):
• Meals must not be lavish or
extravagant, and
• An employee of the RIC must be
present at the meal.
See section 274(n)(3) for a special
rule that applies to expenses for
meals consumed by individuals
subject to the hours of service limits of
the Department of Transportation.
Qualified transportation fringes
(QTFs). Generally, no deduction is
allowed under section 274(a)(4) for
QTFs provided by employers to their
employees. QTFs are defined in
section 132(f)(1) and include:
• Transportation in a commuter
highway vehicle between the
-13-
Entertainment facilities.
Generally, the RIC cannot deduct an
expense paid or incurred for a facility
(such as a yacht or hunting lodge)
used for an activity usually considered
entertainment, amusement, or
recreation.
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-NEC 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.
Fines and penalties. Generally, no
deduction is allowed for fines or
similar penalties paid or incurred to, or
at the direction of, a government or
governmental entity for violating any
law, or for the investigation or inquiry
into the potential violation of a law,
except:
• Amounts that constitute restitution,
• Amounts paid to come into
compliance with the law,
• Amounts paid or incurred as the
result of certain court orders or
agreements in which no government
or governmental entity is a party, and
• Amounts paid or incurred for taxes
due.
No deduction is allowed unless the
amounts are specifically identified in
the order or agreement and the RIC
establishes that the amounts were
paid for that purpose. Also, any
amount paid or incurred as
reimbursement to the government for
the costs of any investigation or
litigation are not eligible for the
exceptions and are nondeductible.
See section 162(f).
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 29g. 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.
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).
DRAFT AS OF
December 2, 2021
Lobbying expenses. Generally,
lobbying expenses are not deductible.
Examples of nondeductible expenses
include:
• Amounts paid or incurred in
connection with influencing federal,
state, or 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.
Certain in-house lobbying
expenditures that do not exceed
$2,000 are deductible.
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 28. Reserved for future use.
Line 29b. Estimated tax payments.
Enter any estimated tax payments the
RIC made for the tax year.
Line 29f. Credit from Form 2439.
Enter the credit from Form 2439 for
the RIC's share of the tax paid by
Line 29h. Reserved for future use.
Line 29i. Reserved for future use.
Line 29j. 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 29j. Enter
the amount withheld and the words
“Backup Withholding” in the blank
space above line 29j.
Line 30. 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 31. 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 31,
• 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/
OPA.
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.
-14-
Line 2. Enter the capital gain
dividends from Schedule A, line 8b.
Line 4. Capital gains tax. Multiply
the amount on line 3 by 21% (0.21).
Enter the result here and on
Schedule J, line 2b.
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) for information on
post-October capital losses and late
year ordinary 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
Line 2c—Taxes Imposed Under
Sections 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.
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.
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.
DRAFT AS OF
December 2, 2021
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
RICs figure their tax by multiplying
investment company taxable income
by 21%. Enter this amount on line 2a.
For a RIC that is a personal holding company (PHC). A RIC that is
not in compliance with Regulations
section 1.852-6 is a PHC and is taxed
at a flat rate of 21% on its investment
company taxable income.
Line 2b—Capital Gains Tax
Enter the capital gains tax from line 4,
Part 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).
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—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 2d. On the dotted line to the left of
line 2d, write “Section 1291” and the
amount.
Do not include on line 2d any
interest due under section 1291(c)(3).
Instead, include the amount owed on
Schedule J, line 7, 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 exception to the
anti-churning rules should include any
additional tax due in the total for
line 2d. On the dotted line to the left of
line 2d, write “Section 197” and the
amount. See section 197(f)(9)(B)(ii).
Line 3a—Foreign Tax Credit
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
-15-
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. Enter any
allowable credit from Form 8827,
Credit for Prior Year Minimum
Tax—Corporations. Complete and
attach Form 8827.
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—Interest on Deferred
Tax Liability
Include any interest on deferred tax
attributable to certain nondealer
installment obligations (section
453A(c)) and dealer installment
obligations (section 453(l)).
elects deemed sale treatment on the
transferred property. Generally, if the
C corporation does not make this
election for tax years beginning in
2020, the RIC must pay tax on the net
recognized built-in gain during the
5-year period beginning on its first day
as a RIC or the day it acquired the
property. Special rules apply to
conversion transactions on or after
June 7, 2019, as well as conversion
transactions with a related section
355 distribution. See Regulations
section 1.337(d)-7 for details.
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 to figure the
built-in gains tax under Regulations
section 1.337(d)-6 or 1.337(d)-7.
DRAFT AS OF
December 2, 2021
Line 7—Other Taxes
Include any of the following taxes and
interest in the total on line 7. Check
the appropriate box(es) for the form, if
any, used to compute the total.
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 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 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 Form 8874-B).
• Recapture of employer-provided
childcare facilities and services credit
(see Form 8882).
• 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
A RIC's recognition period for
conversion transactions that occur on
or after August 8, 2016, and on or
before February 17, 2017, is the
10-year period beginning on its first
day as a RIC or the day the RIC
acquired the property, as described in
Temporary Regulations section
1.337(d)-7T(b)(2)(iii), as in effect on
August 8, 2016. However, under the
provisions of final Regulations section
1.337(d)-7(g)(2)(iii), a RIC may
choose to apply a 5-year recognition
period to conversion transactions that
occur on or after August 8, 2016, and
on or before February 17, 2017. See
final Regulations section 1.337(d)-7
and Temporary Regulations section
1.337(d)-7T 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.
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
generally rely on Regulations section
-16-
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.
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).
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 net 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
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.
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 line a, b, or c) . . . . . . . . . . . . . . . . . . . . . . .
d.
e.
f.
g.
h.
i.
a.
b.
c.
d.
DRAFT AS OF
December 2, 2021
Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter 21% of line f
e.
f.
g.
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 7of
Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
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; and
• 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
Schedule J, line 6. 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 8—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 8. See Form 8621 and
How To Report below.
Subtract from the total for line 8 the
deferred tax on the RIC's share of the
undistributed earnings of a qualified
electing fund (see Form 8621).
How To Report
Attach a statement showing the
computation of each item included in,
or subtracted from, the total for line 8.
On the dotted line next to line 8, 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
-17-
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), and
• 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
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
statement reporting 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.
special depreciation allowance for
that property. For a taxpayer with
more than one qualifying business,
the election is made with respect to
each business. Additionally, see Rev.
Proc. 2020-22, 2020-18 I.R.B. 745,
which provides an automatic
extension of time for certain taxpayers
to file a real property trade or business
election or a farming business
election for tax years 2018, 2019, or
2020. Rev. Proc. 2020-22 also
provides an opportunity for certain
taxpayers to withdraw a prior election.
Rev. Proc. 2020-22 does not apply to
utility trades or businesses.
DRAFT AS OF
December 2, 2021
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 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
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 statement
reporting the shareholder's
proportionate share of (1) credits from
tax credit bonds, and (2) gross
income in respect of such credits.
Question 13, Business Interest
Expense Election
The limitation on business interest
expense applies to every taxpayer
with a trade or business, unless the
taxpayer meets certain specified
exceptions. A taxpayer may elect out
of the limitation for certain businesses
otherwise subject to the business
interest expense limitation.
Certain real property trades or
businesses and farming businesses
qualify to make an election not to limit
business interest expense. This is an
irrevocable election. If you make this
election, you are required to use the
alternative depreciation system to
depreciate any property with a
recovery period of 10 years or more.
Also, you are not entitled to the
-18-
Check "Yes" if the taxpayer has an
election in effect to exclude a real
property trade or business or a
farming business from section 163(j).
For more information, see section
163(j) and the Instructions for Form
8990.
Question 14, Conditions for
Filing Form 8990
Generally, a taxpayer with a trade or
business must file Form 8990 to claim
a deduction for business interest. In
addition, Form 8990 must be filed by
any taxpayer that owns an interest in a
partnership with current year, or prior
year carryover, excess business
interest expense allocated from the
partnership.
Exclusions from filing. A taxpayer
is not required to file Form 8990 if the
taxpayer is a small business taxpayer
and does not have excess business
interest expense from a partnership. A
taxpayer is also not required to file
Form 8990 if the taxpayer only has
business interest expense from these
excepted trades or businesses:
• An electing real property trade or
business,
• An electing farming business, or
• Certain utility businesses.
Small business. A small business
taxpayer is not subject to the business
interest expense limitation and is not
required to file Form 8990. A small
business taxpayer is a taxpayer that
(a) is not a tax shelter (as defined in
section 448(d)(3)), and (b) meets the
gross receipts test of section 448(c),
discussed next.
Gross receipts test. A taxpayer
meets the gross receipts test if the
taxpayer has average annual gross
receipts of not more than $26 million
for the 3 prior tax years. A taxpayer's
average annual gross receipts for the
3 prior tax years is determined by
adding the gross receipts for the 3
prior tax years and dividing the total
by 3.
Gross receipts include the
aggregate gross receipts from all
persons treated as a single employer,
such as a controlled group of
corporations, commonly controlled
partnerships, or proprietorships, and
affiliated service groups. See section
448(c) and the Instructions for Form
8990 for additional information.
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.
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:
• Entertainment expenses not
deductible under section 274(a);
• Entertainment related meal
expenses;
• Non entertainment related meals
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, that are allocable to
conventions on cruise ships;
• Employee achievement awards of
nontangible property or tangible
property over $400 ($1,600 if part of a
qualified plan);
• The cost of skyboxes;
• The part of luxury water travel not
deductible under section 274(m);
• Expenses for travel as a form of
education; and
• Other nondeductible travel and
entertainment expenses.
For more information, see Pub.
535, Business Expenses.
DRAFT AS OF
December 2, 2021
Question 15
To be certified as a qualified
opportunity fund, the RIC must file
Form 1120-RIC and attach Form
8996, even if the corporation had no
income or expenses to report. If the
corporation is attaching Form 8996,
check the “Yes” box for question 15.
On the line following the dollar sign,
enter the amount from Form 8996,
line 15.
The penalty reported on this line
from Form 8996, line 15, is not due
with the filing of this form. The IRS will
separately send to you a notice
setting forth the due date for the
penalty payment and where that
payment should be sent.
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; and
• 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.
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.
Schedule L—Balance
Sheets per Books
The balance sheets should agree with
the RIC's books and records.
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are complying with these laws
and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory
requirements as of December 2021 for taxpayers filing 2021 Forms 1065, 1065-B, 1066, 1120, 1120-C, 1120-F, 1120-H,
1120-ND, 1120-S, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments.
Time spent and out-of-pocket costs are presented separately. Time burden is broken out by taxpayer activity, with
reporting representing the largest component. Out-of-pocket costs include any expenses incurred by taxpayers to
prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and
photocopying costs, and tax preparation software costs. While these estimates do not include burden associated with
post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic
errors, implying lower post-filing burden.
Tables 1, 2, and 3 below show the burden model estimates for each of the three classifications of business taxpayers:
Partnerships (Table 1), corporations (Table 2), and S corporations (Table 3). As the tables show, the average filing
compliance is different for the three forms of business. Showing a combined average burden for all businesses would
understate the burden for corporations and overstate the burden for the two pass-through entities (partnerships and
corporations). In addition, the burden for small and large businesses is shown separately for each type of business entity
in order to clearly convey the substantially higher burden faced by the largest businesses.
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Table 1 – Taxpayer Burden for Entities Taxed as Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of
Number of Returns
Taxpayer
(millions)
All Partnerships
Small
Other*
Average Time per Taxpayer
(hours)
Average Cost per
Taxpayer
Average Monetized
Burden
290
270
610
$5,900
$4,400
$29,000
17,800
13,200
89,300
4.5
4.2
0.3
DRAFT AS OF
December 2, 2021
*Other is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.
Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all
attachments
Primary Form Filed or Type of
Number of Returns
Average Time per Taxpayer
Average Cost per
Taxpayer
(millions)
(hours)
Taxpayer
All Taxable Corporations
Small
Large*
2.1
2.0
0.1
335
280
1,255
$7,700
$4,000
$70,200
Average Monetized
Burden
23,500
13,500
194,800
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable
corporations, and pass-through corporations. A small business is any business that does not meet the definition of a large business.
Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments
Primary Form Filed or Type of
Number of Returns
Taxpayer
(millions)
All Pass-Through Corporations
Small
Large*
Average Time per Taxpayer
(hours)
Average Cost per
Taxpayer
Average Monetized
Burden
245
240
610
$3,500
$3,100
$30,900
11,300
10,200
91,500
5.4
5.3
0.1
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable
corporations, and pass-through corporations. A small business is any business that does not meet the definition of a large business.
Note. The data shown are the best estimates for 2021 business entity income tax returns. Reported time and cost
burdens are national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden
varying considerably by taxpayer type. The estimates are subject to change as new forms and data become available.
Comments. If you have comments concerning the accuracy of these time estimates or suggestions for making these
forms simpler, we would be happy to hear from you. You can send us comments through IRS.gov/FormComments. Or
you can write to the Internal Revenue Service, Tax Forms and Publications Division, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. Do not send the tax form to this office. Instead, see Where To File, earlier, near the
beginning of the instructions.
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| File Type | application/pdf |
| File Title | 2021 Instructions for Form 1120-RIC |
| Subject | Instructions for Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies |
| Author | W:CAR:MP:FP |
| File Modified | 2021-12-02 |
| File Created | 2021-11-30 |