Instructions for Form 1120-RIC (2016)

U.S. Income Tax Return for Regulated Investment Companies

Section references are to the Internal Revenue Code unless otherwise noted.

2016


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.

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).

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 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.



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;

    • 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.

    • The RIC disposes of the assets set forth on the statement 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:

      1. One percent of the total value of the RIC's assets at the end of the quarter for which the measurement is done, or

      2. $10,000,000.

    • The RIC disposes of the asset following the identification of the failure within 6 months after the last day of the 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 section 851(d)(2).

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).

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A RIC that does not satisfy the distribution requirements will be subject to taxation as a C corporation.

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.

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.



Definition of a Fund

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.

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.

If the due date falls on a Saturday, Sunday, or legal holiday, the RIC may file its return on the next business day.

Private Delivery Services

RICs can use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing/paying" rule for tax returns and payments.

These private delivery services include only the following.

  • DHL Express: DHL Express 9:00, DHL Express 10:30, DHL Express 12:00, DHL Express Worldwide, DHL Express Envelope, DHL Import Express, 10:30, DHL Import Express 12:00, and DHL Import Express Worldwide.

  • Federal Express (FedEx): FedEx First Overnight, FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Next Flight Out, FedEx International Priority, FedEx International First, and FedEx International Economy.

  • United Parcel Service (UPS): UPS Next Day Air Early AM, UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

For the IRS mailing address to use if you are using a private delivery service, go to IRS.gov and enter “private delivery services” in the search box.

The private delivery service can tell you how to get written proof of the mailing date.

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Private delivery services can't deliver items to P.O. boxes. 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.

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 (Form 1120-RIC, page 1, item D) are: Use the following address:
Connecticut, Delaware, District of Columbia, Florida, 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 Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999-0012
$10 million or more Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming Any amount Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012

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.

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 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.

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.

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A paid preparer may sign 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 2016 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.

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 2017 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.

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. Schedule O (Form 1120).

  4. Form 4626.

  5. Form 4136.

  6. Additional schedules in alphabetical order.

  7. Additional forms in numerical order.

  8. 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 line 30. 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

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 www.eftps.gov, or call 1-800-555-4477 (TTY/TDD 1-800-733-4829).

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 use the same-day wire payment method, the RIC will need to make arrangements with its financial institution ahead of time regarding availability, deadlines, and costs. Financial institutions may charge a fee for payments made this way. To learn more about the information the RIC will need to provide to its financial institution to make a same-day wire payment, visit the IRS website at www.irs.gov/Payments and click on "Same-day wire".



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.

For more information, including penalties, see the instructions for line 29, 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 $205. 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 generally may be penalized ½ 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 RIC can show that the failure to pay on time was due to reasonable cause.



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.



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.



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

  • Any other method authorized by the Internal Revenue Code.

Accrual method.

Generally, a RIC must use the accrual method of accounting if its average annual gross receipts exceed $5 million. See section 448(c).

Under the accrual method, an amount is includible in income when:

  1. All the events have occurred that fix the right to receive the income, which is the earliest of the date:

    1. the required performance takes place,

    2. payment is due, or

    3. payment is received, and

  2. The amount can be determined with reasonable accuracy.

See Regulations section 1.451-1(a) and Pub. 538, Accounting Periods and Methods, for details.



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. To do so, the RIC must file Form 3115, Application for Change in Accounting Method. See the Instructions for Form 3115 for more information and exceptions. Also see Rev. Proc. 2016-29, 2016-21 I.R.B. 880 (or any successor, Notice 2017-6, and Pub. 538, Accounting Periods and Methods.



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.

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

A RIC can round off cents to whole dollars on its return and schedules. If the RIC does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 cents to 99 cents to the next dollar (for example, $1.39 becomes $1 and $2.50 becomes $3).

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 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

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 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 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.



Form 8927,

Determination Under Section 860(e)(4) by a Qualified Investment Entity. Use Form 8927 to establish a determination date under Section 860(e)(4) for purposes of making a deficiency dividend distribution.



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 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.



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 (and subject to the 2% limitation on miscellaneous itemized deductions) 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 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.



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).



Notice to shareholders.

A RIC must notify its shareholders within 60 days after the close of its tax year of the distribution made during the tax year that qualifies for the dividends-received deduction under section 243. 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 for details.

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.

  • 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 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.



Annual information statement for elections under section 108(i).

If the RIC made an election in 2009 or 2010 to defer income from cancellation of debt (COD) in connection with the reacquisition of an applicable debt instrument, the RIC must attach a statement to its return beginning with the tax year following the tax year for which the RIC made the election, and ending the first tax year all income deferred has been included in income. The statement must be labeled "Section 108(i) Information Statement" and must clearly identify, for each applicable debt instrument to which an election under section 108(i) applies, the following.

  1. Any deferred COD income that is included in income in the current tax year.

  2. Any deferred COD income that has been accelerated because of an event described in section 108(i)(5)(D) and must be included in income in the current tax year. Include a description and the date of the acceleration event.

  3. Any deferred COD income that has not been included in income in the current or prior tax years.

  4. Any deferred original issue discount (OID) deduction allowed as a deduction in the current tax year.

  5. Any deferred OID deduction that is allowed as a deduction in the current tax year because of an accelerated event described in section 108(i)(5)(D).

  6. Any deferred OID deduction that has not been deducted in the current or prior tax years.

In addition, the RIC must annually include a copy of the election statement it filed to make the election to defer the income. For more information on deferring the income, see the instructions for line 7. For more information regarding the annual information statement, see Rev. Proc. 2009-37, 2009-36 I.R.B. 309.



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 2016 return for calendar year 2016 and fiscal years that begin in 2016. For a fiscal year return, fill in the tax year in the space at the top of the form.

Note.

The 2016 Form 1120-RIC may also be used if:

  • The RIC has a tax year of less than 12 months that begins and ends in 2017; and

  • The 2017 Form 1120-RIC is not available at the time the RIC is required to file its return.

The RIC must show its 2017 tax year information on the 2016 Form 1120-RIC and take into account any tax law changes that are effective for tax years beginning after December 31, 2016.

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 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.

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. EmployerIdentification 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— Click on the Employer ID Numbers link at www.irs.gov/businesses. The EIN is issued immediately once the application information is validated.

  • By mailing or faxing Form SS-4, Application for Employer Identification Number.

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.

Item D. Total Assets

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-.

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.

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—InvestmentCompany 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 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.



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 carryover 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. 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 or 1065-B)). 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 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.

  • Any COD income deferred from 2009 or 2010 that is includible in income in 2016. See section 108(i), Regulations section 1.108(i)-1, and Rev. Proc. 2009-37.

If the RIC is a direct or indirect partner in a partnership, other special rules apply. See Regulations section 1.108(i)-2.

  • 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. Excess distributions from a Section 1291 fund.

See Form 8621 and the Instructions for Form 8621 for details.



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.

Also see the instructions for Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, with respect to section 163(j).



Golden parachute payments.

A portion of the payments made by a 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.



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 generally must be amortized over an 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.

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).



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, total receipts by adding:

  1. Line 8, Part I,

  2. Net capital gain from line 1, Part II, and

  3. Line 9a, Form 2438.

Disallowance of deduction for employee compensation in excess of $1 million.

Publicly held corporations cannot deduct compensation to a "covered employee" to the extent that the compensation exceeds $1 million. Generally, a covered employee is:

  • The principal executive officer (or an individual acting in that capacity) as of the end of the tax year; or

  • A principal employee whose total compensation must be reported to shareholders under the Securities Exchange Act of 1934 because the employee is among the three highest compensated officers for that tax year (other than the principal executive officer).

For this purpose, compensation does not include:

  • Income from certain employee trusts, annuity plans, or pensions.

  • Any benefit paid to an employee that is excluded from the employee's income.

The deduction limit does not apply to:

  • Commissions based on individual performance;

  • Qualified performance-based compensation; and

  • Income payable under a written, binding contract in effect on February 17, 1993.

The $1 million limit is reduced by amounts disallowed as excess parachute payments under section 280G.

For details, see section 162(m) and Regulations section 1.162-27. Also, see Notice 2007-49, 2007-25 I.R.B. 1429.



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; and

  • Form 8932, Credit for Employer Differential Wage Payments.

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.

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If the RIC provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages any amounts deducted elsewhere.



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.

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 12/31/12 but before 1/1/17 $19,000
After 12/31/07 but before 1/1/13 $18,500
Trucks and Vans
After 12/31/13 but before 1/1/17 $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
If the lease term began before January 1, 2004, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses, to find out if the RIC has an inclusion amount. The inclusion amount for lease terms beginning in 2017 will be published in the Internal Revenue Bulletin in early 2017.



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.



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 2016 prepaid interest allocable to any period after 2016 can deduct only the amount allocable to 2016.

  • Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g).

Special rules apply to:

  • Disqualified interest on certain indebtedness under section 163(j). See Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, and the related instructions.

  • Interest on which no tax is imposed (see section 163(j)).

  • 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.

  • Section 108(i) OID deduction. If the RIC issued a debt instrument with OID that is subject to section 108(i)(2) because of an election to defer income from the cancellation of debt (COD), the deduction for this OID is deferred until the COD is includible in income. The accrued OID is allowed as a deduction ratably over the 5-year period the COD is includible in income. The deduction is limited to the amount of COD subject to the section 108(i) election. See section 108(i)(5)(D) regarding any deferred COD deduction that is allowed as a deduction in the current year because of an accelerated event.

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Interest expense cannot be used to offset interest income.



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.

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 or 1065-B)). 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.

  • Deduction for certain cost of energy efficient commercial building property placed in service before January 1, 2017.

  • Any extraterritorial income exclusion (from Form 8873, line 52).

  • Any net negative section 481(a) adjustment.

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Penalties or fines paid to any government agency or instrumentality because of a violation of a law are not deductible. See Chapter 11, Other Expenses, in Pub. 535 for additional information.



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 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 Regulations section 1.170A-11.

Limitation on deduction.

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 domestic production activities deduction.

  • The deduction allowed under section 249, related to any premium paid or incurred upon the repurchase of a convertible bond.

Carryover.

Charitable contributions over the 10% limitation 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.

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 generally must 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, meals, and entertainment.

Subject to certain limitations and restrictions, the RIC can deduct ordinary and necessary travel, meals, and entertainment expenses incurred in its trade or business.

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 and entertainment.

Generally, the RIC can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses paid or incurred in its trade or business.

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-MISC 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.



Lobbying expenses.

Generally, lobbying expenses are not deductible. Examples of non-deductible expenses include:

  • Amounts paid or incurred in connection with influencing federal or state legislation (but not 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. See section 162(e)(3). Certain in-house lobbying expenditures that do not exceed $2,000 are deductible.

For more information on other deductions that may apply to RICs, see Pub. 535.



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 28b. Estimated tax payments.

Enter any estimated tax payments the RIC made for the tax year.



Line 28f. Credit from Form 2439.

Enter the credit from Form 2439 for the RIC's share of the tax paid by 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 28g. 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.



Line 28h. Refundable credit from Form 8827.

If the RIC elected to claim certain minimum tax credits instead of any additional first-year special depreciation allowance for eligible property, see the instructions for Form 8827. Enter on line 28h the amount from line 8c of Form 8827, if applicable.

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The RIC must use the refundable credits from Form 8827 to reduce any built-in gains tax derived from property that it owned when it was a C corporation, before the credits can be used to reduce RIC taxable income. See the instructions for line h of the Built-in Gains Tax Worksheet Instructions, later.



Line 28i. 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 28i. Enter the amount withheld and the words "Backup Withholding" in the blank space above the line 28i.



Line 29. 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 30. 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 30,

  • 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, under "Tools," then click on "Online Payment Agreement".

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.



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).



Line 2.

Enter the capital gain dividends from Schedule A, line 8b.



Line 4. Capital gains tax.

Enter on line 4 the amount of qualified timber gain included in the total entered on line 3, Part I.



Qualified timber gain.

For tax years beginning in 2016, a RIC with both net capital gain and qualified timber gain (as defined in section 1201(b)(2)) may apply a 23.8% alternative tax rate to the portion of the RIC’s taxable income attributable to the qualified timber gain. The reduced capital gain is reported on line 6.

For purposes of line 4, Part II, qualified timber gain is the sum of the gains over the loses described in section 631(a) and (b). Only timber held more than 15 years can be included in the determination of qualified timber gain.

See sections 1201(b) and 631(a) for more information.



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) and Regulations section 1.852-11 for definitions and information on post-October currency or capital 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

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

Members of a controlled group must use Schedule O (Form 1120) to figure the tax for the group. Most corporations that are not members of a controlled group, and do not file a consolidated return, figure their tax by using the Tax Rate Schedule, below.

For a RIC that is not a personal holding company (PHC).

A RIC in compliance with Regulations section 1.852-6 regarding disclosure of the RIC's actual stock ownership (members of a controlled group should see the instructions for Schedule O (Form 1120)) is not a PHC and should compute its tax using the Tax Rate Schedule, below:



Tax Rate Schedule

If the investment company taxable income (line 26, page 2) is:

Over— But not over— Tax is: Of the amount over—
$0 $50,000 15% $0
50,000 75,000 $ 7,500 + 25% 50,000
75,000 100,000 13,750 + 34% 75,000
100,000 335,000 22,250 + 39% 100,000
335,000 10,000,000 113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000
15,000,000 18,333,333 5,150,000 + 38% 15,000,000
18,333,333 35% 0


For a RIC that is a personal holding company.

A RIC that is not in compliance with Regulations section 1.852-6 is a PHC and is taxed at a flat rate of 35% on its investment company taxable income.



Line 2b–Capital Gains Tax

Enter the capital gains tax from line 8, Part II. If the RIC has qualified timber gain, see the instructions for line 4, Part II, earlier.

Line 2c–Taxes Imposed Under Section 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.

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–Alternative Minimum Tax (AMT)

Unless the RIC is treated as a small corporation exempt from the AMT, it may owe the AMT if it has any of the adjustments and tax preference items listed on Form 4626, Alternative Minimum Tax—Corporations. The RIC must file Form 4626 if its investment company taxable income (or loss), and retained capital gains not designated under section 852(b)(3)(D), plus adjustments and tax preference items, is more than the smaller of:

  • $40,000, or

  • The RIC's allowable exemption amount (from Form 4626).

See Form 4626 for definitions and details on how to figure the tax.

Apportioning tax preference items.

Items of tax preference may be apportioned by the RIC between the entity and its shareholders in accordance with section 59(d)(1)(A).



Line 2e–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 2e. On the dotted line to the left of line 2e write "Section 1291" and the amount.

Do not include on line 2e any interest due under section 1291(c)(3). Instead, include the amount owed on Schedule J, line 6, 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 2e. On the dotted line to the left of line 2e, 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 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.

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.

To figure the minimum tax credit and any carryforward of that credit, use Form 8827, Credit for Prior Year Minimum Tax—Corporations.



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–Other Taxes

Include any of the following taxes and interest in the total on line 6. Check the appropriate box(es) for the form, if any, used to compute the total.

Recapture of investment credit.

If the RIC disposed of investment credit property or changed the property's use before the end of its useful life or recovery period, it may owe a tax. See Form 4255, Recapture of Investment Credit, for details.



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 IRC 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 elects deemed sale treatment on the transferred property. Generally, if the C corporation does not make this election for tax years beginning in 2016, 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.

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.

For conversion transactions on or after June 7, 2016, that follow a related section 355 distribution, the C corporation is treated as making an election to recognize gain and loss as if it had sold all of the converted property to an unrelated party at fair market value on the deemed sale date. And, for a conversion that occurs before June 7, 2016, followed by a related section 355 distribution after June 7, 2016, a RIC, for which a deemed sale election has not been made, recognizes any remaining unrecognized built-in gains and losses resulting from the conversion transaction (after taking into account the impact of section 1374 in the interim period). See Regulation sections 1.337(d)-7 and 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 rely on Regulations section 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 below to figure the built-in gains tax under Regulations section 1.337(d)-6 or 1.337(d)-7.

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 on the next page.



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 capital 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 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.

Note.

If the RIC makes the election, the unused research and minimum tax credits must first be used to reduce the tax on net built-in gain for the tax year to the greatest extent possible. Any remaining unused research and minimum tax credits are included on line 28h to reduce the RIC's income tax. For more information, see the instructions for line 28h.



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.

  • 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 line 6, Schedule J. 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.

Built-in Gains Tax Worksheet (keep for your records)

a. Excess of recognized built-in gains over recognized built-in losses a.
b. Taxable income b.
c. Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years c.
d. Net recognized built-in gain (enter the smallest of lines a, b, or c) d.
e. Section 1374(b)(2) deduction e.
f. Subtract line e from line d. If zero, enter -0- here and on line i f.
g. Enter 35% of line f g.
h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation (see instructions) h.
i. Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6 of Schedule J (see instructions) i.

Line 7–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 7. See Form 8621 and How To Report, below.

Subtract from the total for line 7 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 7. On the dotted line next to line 7, 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 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).

  • 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

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 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 notice designating 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.

The notice must be mailed to the shareholders no later than 60 days after the end of the RIC's tax year. For more information, see Regulations section 1.853-3.

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 notice designating the shareholder's proportionate share of: (1) credits from tax credit bonds, and (2) gross income in respect of such credits. The notice must be mailed to the shareholders no later than 60 days after the end of the RIC's tax year.



Schedule L—Balance Sheets per Books

The balance sheets should agree with the RIC's books and records.

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.



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.

  • 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.



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:

  • Meals and entertainment 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, which are allocable to conventions on cruise ships.

  • Employee achievement awards over $400.

  • The cost of entertainment tickets over face value (also subject to the 50% limit under section 274(n)).

  • The cost of skyboxes over the face value of nonluxury box seat tickets.

  • The part of luxury water travel not deductible under section 274(m).

  • Expenses for travel as a form of education.

  • Other nondeductible travel and entertainment expenses.

For more information, see Pub. 542, Corporations.



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.



Instructions for Form 1120-RIC - Notices

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 for taxpayers filing Forms 1065, 1065-B, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120S, 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.

Reported time and cost burdens are national averages and do not necessarily reflect a “typical” case. Most taxpayers experience lower than average burden, with taxpayer burden varying considerably by taxpayer type. For instance, the estimated average time burden for all taxpayers filing Forms 1065, 1066, or 1120 and related forms is 275 hours, with an average cost of $4,700 per return. This average includes all associated forms and schedules, across all preparation methods and taxpayer activities.

The average burden for taxpayers filing Forms 1065, 1065-B, 1066, and related attachments is about 388 hours and $13,000; the average burden for taxpayers filing Form 1120 and associated forms is about 610 hours and $26,233; and the average for Forms 1120-REIT, 1120-RIC, 1120S, and all related attachments is 363 hours and $12,467. Within each of these estimates there is significant variation in taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these estimates.

Table 1 – Taxpayer Burden for Entities Taxed As Partnerships

Forms 1065, 1065-B, 1066 and all attachments
Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Partnerships 3.9 290 $5,700
Small 3.7 270 $4,400
Large* 0.2 610 $29,000
*A large business is defined as one having end-of-year assets greater than $10 million.


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 Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Taxable Corporations 2.1 315 $6,300
Small 2.0 280 $4,000
Large* 0.1 1,250 $68,900
*A large business is defined as one having end-of-year assets greater than $10 million.


Table 3 – Taxpayer Burden for Entities Taxed As Pass-Through Corporations

Forms 1120-REIT, 1120-RIC, 1120S and all attachments
Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Pass-Through Corporations 4.9 245 $3,500
Small 4.8 240 $3,100
Large* 0.1 615 $30,800
*A large business is defined as one having end-of-year assets greater than $10 million.


Comments. If you have comments or suggestions for making this form simpler, we would be happy to hear from you. You can send us comments from www.irs.gov/formspubs. Click on "More Information" and then on "Give us feedback." Or you can send your comments to: Internal Revenue Service; Tax Forms and Publications Division; SE:W:CAR:MP:T; 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.