Rp 2018-47

26 CFR § 601.105: Examination of returns and
claims for refund, credit or abatement; determination of correct tax liability.
(Also: Part 1, §§ 951, 965, 4982)

Rev. Proc. 2018 – 47
SECTION 1. PURPOSE
This revenue procedure provides guidance under § 4982 of the Internal Revenue
Code (Code) for regulated investment
companies (RICs) on the treatment of
amounts that § 965 requires to be included
in gross income under § 951(a)(1) for the
excise tax year ended on December 31,
2017.
SECTION 2. BACKGROUND
.01 Section 4982(a) imposes an excise tax on most RICs for each calendar
year equal to 4 percent of the excess of
the required distribution for the calendar
year over the distributed amount for the
calendar year. Under § 4982(b), a RIC’s
required distribution for a calendar year
generally is the sum of 98 percent of the
RIC’s ordinary income for the calendar
year (determined under § 4982(e)(1)),
plus 98.2 percent of the RIC’s capital
gain net income for the one-year period
ending on October 31 of the calendar
year (determined under § 4982(e)(2)),
plus any prior year shortfall (determined
under § 4982(b)(2)). Under § 4982(c),
the distributed amount for a calendar
year generally is the sum of the RIC’s
deductions for dividends paid during the
calendar year (subject to limitations
described in § 4982(c)(3)), plus any
amount on which tax is imposed under
§ 852(b)(1) or (3)(A) for a taxable year
ending in the calendar year, plus any
prior year overdistribution (determined
under § 4982(c)(2)).
.02 Many items of ordinary income,
such as dividends and interest, are periodic and relatively predictable in amount.
When § 4982 was added to the Code by
the Tax Reform Act of 1986, P.L. 99 –
514, 100 Stat. 2085, it provided that a
RIC’s required distribution for a calendar
year was based in part on the RIC’s ordinary income for the entire calendar year.
Capital gains and losses are more likely to
arise from sales or exchanges, and their
tax consequences may be affected by sub-

September 24, 2018

sequent transactions. Section 4982, as
originally enacted, provided an October
31 year-end for computing the portion of
the required distribution that is based on
capital gain net income, which allows
time for a RIC to make the required
distribution by December 31 after the
amount of its capital gain net income is
known.
.03 Section 4982 has been amended
several times to provide an October 31
year-end for measuring various nonperiodic items of ordinary income. The
Technical and Miscellaneous Revenue
Act of 1988, P.L. 100 – 647, 102 Stat.
3342, added § 4982(e)(5), which provided
that any post-October foreign currency
gain or loss attributable to a § 988 transaction is taken into account in computing
the following calendar year’s ordinary income of the RIC. The Taxpayer Relief Act
of 1997, P.L. 105–34, 111 Stat. 788,
added § 4982(e)(6), which provided for a
deemed October 31 year-end for applying
§ 1296 (relating to a mark-to-market election for marketable stock in a passive foreign investment company (PFIC)) and for
deferral of any post-October gain or loss
from an actual disposition of stock in a
PFIC with respect to which a § 1296 election has been made to the next year for
purposes of computing the ordinary income of the RIC under § 4982(e)(1). The
RIC Modernization Act of 2010, P.L.
111–325, 124 Stat. 3537, expanded the
scope of § 4982(e)(5) beyond foreign currency gain and loss attributable to § 988
transactions to include other “specified
gains and losses” as discussed under section 2.04 of this revenue procedure and
expanded the scope of § 4982(e)(6) beyond § 1296 to include other “specified
mark to market provisions” described in
§ 4982(e)(6)(B).
.04 Section 4982(e)(5) defers ordinary
income from “specified gains and losses”
that occur after October 31 of a calendar
year to January 1 of the following calendar year for purposes of § 4982. Specified
gains and losses are defined as ordinary
gain or loss from the sale, exchange, or
other disposition of property (including
the termination of a position with respect
to such property). The term includes any
foreign currency gain or loss attributable
to a § 988 transaction (within the meaning
of § 988) and any gain or loss on market-

518

able shares of a PFIC that are marked to
market under § 1296.
.05 Section 965 was amended by “An
Act to provide for reconciliation pursuant
to titles II and V of the concurrent resolution on the budget for fiscal year 2018,”
P.L. 115–97, 131 Stat. 2054 (2017) (Act).
Section 965(a), as amended, provides that
for the last taxable year of a deferred
foreign income corporation (DFIC) (as
defined in § 965(d)(1)) that begins before
January 1, 2018, the subpart F income of
the corporation (as otherwise determined
for such taxable year under § 952) will be
increased by the greater of (1) the accumulated post-1986 deferred foreign income (as defined in § 965(d)(2)) of such
corporation determined as of November 2,
2017, or (2) the accumulated post-1986
deferred foreign income of such corporation determined as of December 31, 2017.
Section 965(b) may cause the amount of
the inclusion under § 965(a) to be reduced, and § 965(c) provides a deduction
to a United States shareholder of a DFIC
in the year that the United States shareholder has an inclusion under § 951(a)(1)
by reason of § 965.
.06 If the taxable year of a DFIC is the
calendar year, the subpart F income of the
DFIC will be increased by the amount
described in § 965(a) for the taxable year
of the DFIC ended December 31, 2017.
Under §§ 951(a)(1)(A) and 965(e)(2), a
RIC that is a United States shareholder (as
defined in § 951(b)) of such DFIC must
include in gross income its pro rata share
of the DFIC’s subpart F income for its
taxable year that includes or ends on December 31, 2017. Section 4982(e)(1)(C)
provides that for excise tax purposes, the
ordinary income portion of the required
distribution is determined by treating the
calendar year as a RIC’s taxable year. As
a result, amounts included in a RIC’s income under § 951(a)(1), by reason of
§ 965, from a calendar-year DFIC, increase the RIC’s 2017 required distribution under § 4982.
.07 The Act was enacted on December
22, 2017, and contained provisions that
required certain RICs both to compute the
amount of a new type of inclusion and to
make corresponding distributions by December 31, 2017. The Internal Revenue
Service (Service) received requests for relief from taxpayers who cited the admin-

Bulletin No. 2018 –39

istrative burden of obtaining information
from a DFIC, computing the required
amounts, and making the required distributions in a brief amount of time. An
inclusion under § 951(a) by reason of
§ 965 is not a specified gain under
§ 4982(e)(5) because it is not an ordinary
gain from the sale, exchange, or other
disposition of property. The inclusion is,
however, a non-periodic item of ordinary
income required to be computed as of
November 2, 2017, and December 31,
2017. Thus, the period during which a
RIC could pay dividends in respect of an
inclusion under § 951(a)(1) by reason of
§ 965 with respect to a calendar-year
DFIC ended very shortly after the amendment of § 965 and on the same date that
the amount of any inclusion could be
computed. The Department of the Treasury and the Service have determined that,

Bulletin No. 2018 –39

in such cases, it is in the interest of sound
tax administration to allow additional time
for a RIC to make the required distribution under § 4982.
SECTION 3. SCOPE
This revenue procedure applies to any
amount that § 965 would (but for this
revenue procedure) require a RIC to include in gross income under § 951(a)(1)
for the RIC’s excise tax year ended on
December 31, 2017 (a 2017 Inclusion).
SECTION 4. APPLICATION
The Service will not challenge a RIC’s
treatment of a 2017 Inclusion if the RIC (1)
treats the 2017 Inclusion in the same
manner as a specified gain (within the
meaning of § 4982(e)(5)(B)(i)) that (but for
§ 4982(e)(5)) would be properly taken into

519

account during the portion of the RIC’s
2017 excise tax year that is after October 31;
and (2) treats any deduction under § 965(c)
attributable to the 2017 Inclusion in the
same manner as a specified loss (within the
meaning of § 4982(e)(5)(B)(ii)) that (but for
§ 4982(e)(5)) would be properly taken into
account during the portion of the RIC’s
2017 excise tax year that is after October 31.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Grace Cho of the Office of
Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. Cho at (202) 317-6945 (not a
toll-free number).

September 24, 2018