Code Section 316
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 316 | 12/22/2010 | Regulated Investment Company Modernization Act of 2010 | Return of Capital Distributions of RICs | Gain of less than 0.5 |
Return of Capital Distributions of RICs
Explanation of Provision
In the case of a non-calendar year RIC which makes distributions of property with respect to the taxable year in an amount in excess of the current and accumulated earnings and profits, the current earnings and profits are allocated first to distributions made on or before December 31 of the taxable year.
Thus, under the provision, in the above example, all $3 million of the distribution made on September 15 is out of current earnings and profits and thus treated as dividend income. Only $1 million of the distribution made on March 15 is out of current earnings and profits and treated as dividend income. The remaining $2 million of the March 15 distribution is applied against the adjusted basis of each shareholder’s stock or taken into account as gain by the shareholders.
In the case of a RIC with more than one class of stock, the provision applies separately to each class of stock.1896
1896- See Rev. Rul. 69–440.
-Return to Explanation of Provision
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