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February 23, 1989
TO: TAX MEMBERS NO. 7-89
ACCOUNTING/TREASURERS COMMITTEE NO. 11-89
RE: RECENTLY REVISED IRS FORMS AND INSTRUCTIONS
__________________________________________________________
The Internal Revenue Service recently revised (1) the
instructions for Form 1120-RIC and (2) Form 8613, the RIC Minimum
Distribution Excise Tax Return, and its instructions. The
instructions for each of these Forms reflect changes made by the
Technical and Miscellaneous Revenue Act of 1988, which were
summarized in Institute Memorandum to Tax Members No. 59-88,
Closed-End Fund Members No. 55-88, Unit Investment Trust Members
No. 69-88 and Accounting/Treasurer Advisory Committee No. 41-88,
dated November 14, 1988. Non-legislative changes have been made
to the instructions as well. Forms 1120-RIC and 8613 and the
instructions for each are attached.
The instructions for Form 1120-RIC have been amended to
reflect, among other things, that (1) income from a partnership
qualifies under the 90 percent test to the extent that the
partnership receives income, which it passes through to the RIC,
that would be qualifying income under the 90 percent test if
received directly by the RIC; (2) gains realized on foreign
currencies held for less than three months will, for taxable
years beginning after November 10, 1988, be short-short income
unless the currencies are directly related to the company's
principal business of investing in stock or securities; (3) a RIC
will not be disqualified under the 30 percent test if the short-
short gains in excess of 30 percent were attributable to abnormal
redemptions; (4) tax must be paid in certain circumstances on the
net built-in gain of C corporation assets in connection with the
qualification of a corporation to be taxed as a RIC or the
transfer of such assets to a RIC in a carryover basis
transaction; (5) dividends declared in October, November or
December shall be treated as paid by the RIC and received by the
shareholder on December 31 of such year if actually paid in
January of the following year; and (6) a non-publicly offered
RIC may make an election to treat as its affected RIC expenses 40
percent of its total expenses. Certain changes have also been
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made to the estimated tax instructions and to the Schedule J tax
computation instructions.
The most important change to the Form 8613 instructions is
the clarification that if a fund makes the election to compute
its capital gain net income on the basis of its fiscal year
ending November 30 or December 31 rather than on the basis of a
twelve month period ending October 31, and if the first year the
election is in effect is not the first year that the fund is
subject to tax under section 4982, then the fund must compute its
capital gain net income for the period beginning on November 1 of
the year immediately preceding the election year and ending on
the last day of the first year for which the election was made.
The instructions for Form 8613 have also been amended to
reflect that (1) in determining the amount of capital gain net
income, such amount is reduced by the amount of the fund's net
ordinary loss for the calendar year (but not below the amount of
the fund's net capital gain); (2) dividends declared in October,
November or December shall be treated as paid by the RIC and
received by the shareholder on December 31 of such year if
actually paid in January of the following year; (3) investment
company taxable income for the calendar year shall not include
any foreign currency gain or loss attributable to section 988
transactions that would otherwise have been taken into account
after October 31 of such year (but shall be taken into account in
the following year) unless the fund has made an election to use
its November 30 or December 31 fiscal year-end for section 4982
purposes; and (4) the excise tax does not apply to funds in which
all the shareholders during the year were certain trusts or
segregated asset accounts of a life insurance company.
We will keep you informed of developments.
Keith D. Lawson
Assistant General Counsel
Attachments