July 13, 1995
TO: TAX COMMITTEE No. 27-95
CLOSED-END FUND COMMITTEE No. 35-95
UNIT INVESTMENT TRUST COMMITTEE No. 56-95
RE: ILLINOIS CLARIFIES TREATMENT OF RICS THAT RETAIN CAPITAL
GAINS
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Illinois has adopted legislation clarifying its treatment of regulated investment companies
("RICs") that retain capital gains. Under Illinois law, a RIC computes its Illinois taxable income by
adding back to federal taxable income the amount by which its long-term capital gains realized during a
year exceed its "capital gain dividends" for the year.
The statutory change clarifies that the term "capital gain dividends" includes both distributed
long-term capital gains, that are designated in accordance with Internal Revenue Code section
852(b)(3)(C), and retained long-term capital gains, that are deemed distributed to shareholders pursuant
to Internal Revenue Code section 852(b)(3)(D). The legislation provides that the amendment is
"declarative of existing law," thereby overruling a position taken last year by the Illinois Department of
Revenue that the term "capital gain dividends" includes only amounts actually distributed by a RIC to its
shareholders.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax