Code Section 4982

Code Section	Effective Date	Name of Act	Name of Provision	10yr Revenue Estimate ($millions)
4982(e)	12/22/2010	Regulated Investment Company Modernization Act of 2010	Deferral of Certain Gains and Losses of RICs for Excise Tax Purposes	Loss of less than 0.5
4982(f)	12/22/2010	Regulated Investment Company Modernization Act of 2010	Excise Tax Exemption for Certain RICs Owned by Tax Exempt Entities	negligible
4982(b)(1)	12/22/2010	Regulated Investment Company Modernization Act of 2010	Increase in Required Distribution of Capital Gain Net Income	92
4982(c)(4)	12/22/2010	Regulated Investment Company modernization Act of 2010	Distributed Amount for Excise Tax Purposes Determined on Basis of Taxes Paid by RIC	Gain of less than 0.5

Deferral of Certain Gains and Losses of RICs for Excise Tax Purposes

Explanation of Provision

Under the provision, the present-law excise tax ‘‘push’’ rules applicable to foreign currency gains and losses are expanded to include all ‘‘specified gains and losses,’’ i.e., ordinary gains and losses from the sale, exchange, or other disposition of (or termination of a position with respect to) property, including foreign currency gain and loss, and amounts marked-to-market under section 1296. Thus, these post-October 31 gains and losses are ‘‘pushed’’ to the next calendar year.¹⁹²³

The provision also provides that, for purposes of determining a RIC’s ordinary income, the present-law rule treating PFIC stock as disposed of on October 31 is made applicable to all property held by a RIC which under any provision of the Code (including regulations there under) is treated as disposed of on the last day of the taxable year.

Finally, for purposes of the excise tax, the provision allows a RIC with a taxable year other than the calendar year, except as provided in regulations, to elect to ‘‘push’’ any net ordinary loss (determined without regard to ordinary gains and losses which are automatically ‘‘pushed’’ to the next calendar year) attributable to the portion of the calendar year after the beginning of the taxable year which begins in the calendar year to the first day of the next calendar year.

For example, assume a RIC for its taxable year ending June 30, 2012, has ordinary loss of $1 million for the portion of its taxable year ending on December 31, 2011, and $1 million ordinary income for the remainder of the taxable year. The RIC has no other items of income or loss in 2011, 2012, or 2013. The RIC must distribute $980,000 in 2012 to avoid the excise tax, not withstanding that it has no taxable income (or earnings and profits) for a taxable year which includes any portion of 2012. Under the provision, if the RIC makes an election, the $1 million ordinary loss will be treated as arising on January 1, 2012, for purposes of the excise tax and the RIC will not be required to make a distribution in 2012 to avoid the excise tax.

Excise Tax Exemption for Certain RICs Owned by Tax Exempt Entities

Explanation of Provision

The provision adds tax-exempt entities whose ownership of beneficial interests in the RIC would not preclude the application of section 817(h)(4) (regarding segregated asset accounts of a variable annuity or life insurance contract) to the list of persons who may hold stock in a RIC that is exempt from the excise tax. These persons include qualified annuity plans described in section 403, IRAs, including Roth IRAs, certain government plans described in section 414(d) or 457, and a pension plan described in section 501(c)(18).¹⁹¹⁶ Also, another RIC to which section 4982 does not apply may hold stock in a RIC exempt from the excise tax.

Increase in Required Distribution of Capital Gain Net Income

Explanation of Provision

The provision increases the required distribution percentage of the capital gain net income from 98 percent to 98.2 percent.

Distributed Amount for Excise Tax Purposes Determined on Basis of Taxes Paid by RIC

Explanation of Provision

Under the provision, a RIC making estimated tax payments of the taxes imposed on investment company taxable income and undistributed net capital gain for a taxable year beginning (but not ending) during any calendar year may elect to increase the distributed amount for that calendar year by the amount on which the estimated tax payments of these taxes are made during that calendar year. The distributed amount for the following calendar year is reduced by the amount of the prior year’s increase.

1923- For treatment of these losses for income tax purposes, see section 852(b)(8) of the Code, as amended by section 308 of the Act.
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