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and are treated the same as other gains

For these purposes, treat net

reduce the tax on the RIC’s taxable

or losses of the RIC. The RIC’s tax on net

recognized built-in gain excluded from

income.

recognized built-in gain is treated as a

line a as if the full amount had been

Note. If the RIC makes the election,

loss sustained by the RIC after October

entered on line a in the current tax year.

the unused research and minimum tax

31 of the same tax year (see the

Line a. Enter the amount that would be

credits must first be used to reduce the

instructions for line i of the Built-in Gains

the taxable income of the RIC for the tax

tax on net built-in gain for the tax year to

Tax Worksheet below). See Regulations

year if only recognized built-in gain,

the greatest extent possible. Any

section 1.337(d)-7 for details.

recognized built-in loss, and recognized

remaining unused research and minimum

built-in gain carryover were taken into

tax credits are included on line 28h to

Different rules apply to elections to be

account.

a RIC and to transfers of property in a

reduce the RIC’s income tax. For more

Line b. Add the amounts shown on:

information, see the instructions for line

carryover basis transaction that occurred

•

28h.

prior to January 2, 2002. For RIC

Form 1120-RIC, page 1, line 24,

•

elections and property transfers before

Form 1120-RIC, Part II, line 1, and

Line i. The RIC’s tax on the net

•

this date, the C corporation is subject to

Form 2438, line 11.

recognized built-in gain is treated as a

deemed sale treatment on the transferred

For this purpose, refigure line 24 on page

loss sustained by the RIC after October

property unless the RIC elects section

1 without regard to any election under

31 of the same tax year. Deduct the tax

1374 treatment. See Regulations section

section 852(b)(2)(F). Enter the result on

attributable to:

1.337(d)-6 for information on how to make

line b of the Built-in Gains Tax Worksheet

•

Ordinary gain as a deduction for taxes

the election and figure the tax for RIC

below.

on Form 1120-RIC, line 12.

elections and property transfers before

Line c. The RIC’s net unrealized built-in

•

Short-term capital gain as a short-term

this date. The RIC may also rely on

gain is the amount, if any, by which the

capital loss on Schedule D (Form 1120),

Regulations section 1.337(d)-5 for RIC

FMV of the assets of the RIC at the

line 1.

elections and property transfers that

•

beginning of its first RIC year (or as of the

Long-term capital gain as a long-term

occurred before January 2, 2002.

date the assets were acquired, for any

capital loss on Schedule D (Form 1120),

asset with a basis determined by

line 6.

Built-in Gains Tax Worksheet

reference to its basis (or the basis of any

Instructions

other property) in the hands of a C

How to Report

Complete the worksheet below to figure

corporation) exceeds the aggregate

If the RIC checked the “Other” box, enter

the built-in gains tax under Regulations

adjusted basis of such assets at that time.

the tax or interest on line 6, Schedule J.

section 1.337(d)-6 or 1.337(d)-7.

Enter on line c the RIC’s net

Also, attach a schedule, showing the

unrealized built-in gain reduced by the net

computation of each item included in the

For tax years beginning in 2009 or

recognized built-in gain for prior years.

total for line 6, and identify (a) the type of

2010, no tax is imposed on the net

See sections 1374(c)(2) and (d)(1).

tax or interest, and (b) the applicable

recognized built-in gain of a RIC if

CAUTION

Code section.

Line d. If the amount on line b exceeds

the 7th year of the applicable recognition

the amount on line a, the excess is

period ended before the tax year. In

Line 7–Total Tax

treated as a recognized built-in gain in the

figuring the amount to enter on line a,

Include any deferred tax on the

succeeding tax year.

exclude any recognized built-in gains and

termination of a section 1294 election

recognized built-in losses arising in the

Line e. Enter the section 1374(b)(2)

applicable to shareholders in a qualified

tax year if the 7th year of the applicable

deduction. Generally, this is any net

electing fund in the amount entered on

recognition period ended before the

operating loss or capital loss carryforward

line 7. See Form 8621, Part V, and How

beginning of the tax year. This exclusion

(to the extent of net capital gain included

to report, below.

does not apply, however, for the following

in recognized built-in gain for the tax year)

purposes.

arising in tax years for which the RIC was

Subtract from the total for line 7 the

•

Figuring the carryover of net

a C corporation. A capital loss

deferred tax on the RIC’s share of the

recognized built-in gain in excess of the

carryforward must be used to reduce

undistributed earnings of a qualified

taxable income limitation;

recognized built-in gain for the tax year to

electing fund (see Form 8621, Part II).

•

the greatest extent possible before it can

Allocating your taxable income

How to report

limitation (line b) between separate

be used to reduce the RIC’s taxable

income.

groups of assets as required by

Attach a schedule showing the

Regulations section 1.1374-8(d);

Line h. Credit carryforwards arising in

computation of each item included in, or

•

Figuring your net unrealized built-in

tax years for which the RIC was a C

subtracted from, the total for line 7. On

gain limitation in any subsequent year

corporation must be used to reduce the

the dotted line next to line 7, enter the

(line c); or

tax on net built-in gain for the tax year to

amount of tax or interest, identify it as tax

•

Figuring your section 1374(b)(2)

the greatest extent possible before the

or interest, and specify the Code section

deduction (line e) in any subsequent year.

credit carryforwards can be used to

that applies.

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

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

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.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

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.

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.

-12-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - Internal Revenue Service - 2010 Page 12

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