|Code Section||Effective Date||Name of Act||Name of Provision|
|852(b)(8)||12/22/2010||Regulated Investment Company Modernization Act of 2010||Elective Deferral of Certain Late-Year Losses of RICs|
Elective Deferral of Certain Late-Year Losses of RICs
Explanation of Provision
Post-October capital losses
Under the provision, except to the extent provided in regulations, a RIC may elect to ‘‘push’’ to the first day of the next taxable year part or all of any post-October capital loss. The post-October capital loss means the greatest of the RIC’s net capital loss, net long-term capital loss, or the net short-term capital loss (attributable to the portion of the taxable year after October 31).1912
The election 1913 applies for all purposes of the Code, including determining taxable income, net capital gain, net short-term capital gain, and earnings and profits.
The application of the provision to short-term capital losses may be illustrated by the following example:
Assume a RIC for its taxable year ending June 30, 2012, recognizes a short-term capital gain of $1 million on September 15, 2011. In order to avoid the excise tax, the RIC distributes $980,000 on December 15, 2011. On May 15, 2012, the RIC recognizes a $1 million long-term capital gain and $1 million short-term capital loss. The RIC has no other income or loss during 2011, 2012, or 2013 (and has no accumulated earnings and profits).
The RIC may elect to treat the short-term capital loss as arising on July 1, 2012. If the RIC so elects and makes an additional $1 million distribution before July 1, 2012, it may report the distribution as a capital gain dividend and be allowed a dividends paid deduction in computing the tax on its net capital gain for the 2011–2012 taxable year. No amended Forms 1099 and no amended tax returns by the shareholders are required.
Late-year ordinary losses
Under the provision, except to the extent provided in regulations, a RIC may elect to ‘‘push’’ to the first day of the next taxable year part or all of any qualified late-year ordinary loss. The qualified late year ordinary loss is the excess of (1) the sum of the specified losses attributable to the portion of the taxable year after October 31 and other ordinary losses attributable to the portion of the taxable year after December 31, over (2) the sum of the specified gains attributable to the portion of the taxable year after October 31 and other ordinary income attributable to the portion of the taxable year after December 31. Specified losses and gains have the same meaning as used for purposes of the excise tax under section 4982.1914
The election applies for all purposes of the Code.
1912 Special rules apply to certain RICs with taxable years ending with the month of November or December.
1913 The principles of Treasury Regulation section 1.852–11 are to apply to a qualified late year loss for which an election is made under this provision, subject to any subsequent change in the regulations.