Frequently Asked Questions
Who is eligible for the RIC Elective Deferral of Post-October Ordinary Losses?
Available to RICs with a taxable year other than the calendar year that incur ordinary losses in the latter portion of the year.
How does the RIC Elective Deferral of Post-October Ordinary Losses work?
Allows a RIC to elect to defer ordinary losses incurred after the start of its taxable year (but within the calendar year) to the following calendar year for excise tax purposes.
What law authorizes the RIC Elective Deferral of Post-October Ordinary Losses?
The RIC Elective Deferral of Post-October Ordinary Losses is authorized under IRC §4982(e)(7) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §4982
Source: Internal Revenue Code, Title 26, United States Code
§ 4982. Excise tax on undistributed income of regulated investment companies(a) Imposition of taxThere is hereby imposed a tax on every regulated investment company for each calendar year equal to 4 percent of the excess (if any) of—(1) the required distribution for such calendar year, over
(2) the distributed amount for such calendar year.
(b) Required distributionFor purposes of this section—(1) In generalThe term “required distribution” means, with respect to any calendar year, the sum of—(A) 98 percent of the regulated investment company’s ordinary income for such calendar year, plus
(B) 98.2 percent of the regulated investment company’s capital gain net income for the 1-year period ending on October 31 of such calendar year.
(2) Increase by prior year shortfallThe amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—(A) the grossed up required distribution for the preceding calendar year, over
(B) the distributed amount for such preceding calendar year.
(3) Grossed up required distributionThe grossed up required distribution for any calendar year is the required distribution for such year determined—(A) with the application of paragraph (2) to such taxable year, and
(B) by substituting “100 percent” for each percentage set forth in paragraph (1).
(c) Distributed amountFor purposes of this section—(1) In generalThe term “distributed amount” means, with respect to any calendar year, the sum of—(A) the deduction for dividends paid (as defined in section 561) during such calendar year, and
(B) any amount on which tax is imposed under subsection (b)(1) or (b)(3)(A) of section 852 for any taxable year ending in such calendar year.
(2) Increase by prior year overdistributionThe amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—(A) the distributed amount for the preceding calendar year (determined with the application of this paragraph to such preceding calendar year), over
(B) the grossed up required distribution for such preceding calendar year.
(3) Determination of dividends paidThe amount of the dividends paid during any calendar year shall be determined without regard to—(A) the provisions of section 855, and
(B) any exempt-interest dividend as defined in section 852(b)(5).
(4) Special rule for estimated tax payments(A) In generalIn the case of a regulated investment company which elects the application of this paragraph for any calendar year—(i) the distributed amount with respect to such company for such calendar year shall be increased by the amount on which qualified estimated tax payments are made by such company during such calendar year, and
(ii) the distributed amount with respect to such company for the following calendar year shall be reduced by the amount of such increase.
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