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Item 8

RIC makes the election, include the

Schedule K–Other

interest income from the tax credit bonds

Tax-exempt interest. Show any

on Part I, line 2. Also, increase the

Information

tax-exempt interest received or accrued.

dividends paid deduction by the amount

Include any exempt-interest dividends

The following instructions apply to

of the credits distributed to shareholders.

received as a shareholder in a mutual

questions 1 through 11. Complete all

If the RIC makes the election, it is not

fund or other RIC.

items that apply.

allowed to take any credits related to the

Item 10

qualified tax credit bonds.

Question 3

For more information, see section

Election under section 853(a). A RIC

Check the “Yes” box if the RIC is a

853A.

may make an irrevocable election under

subsidiary in a parent-subsidiary

Notification to shareholders. If the

section 853(a) to allow its shareholders to

controlled group. This applies even if the

RIC makes the election to apply section

apply their share of the foreign taxes paid

RIC is a subsidiary member of one group

853A, it must furnish to its shareholders a

by the RIC either as a credit or a

and the parent corporation of another.

written notice designating the

deduction. If the RIC makes this election,

shareholder’s proportionate share of: (1)

the amount of foreign taxes it paid during

Note. If the RIC is an “excluded

credits from tax credit bonds, and (2)

the tax year may not be taken as a credit

member” of a controlled group (see

gross income in respect of such credits.

or a deduction on Form 1120-RIC, but

section 1563(b)(2)), it is still considered a

The notice must be mailed to the

may be claimed on Form 1120-RIC,

member of a controlled group for this

shareholders no later than 60 days after

Schedule A, line 5, as an addition to the

purpose.

the end of the RIC’s tax year.

dividends-paid deduction.

Question 5

Eligibility. To qualify to make the

election, the RIC must meet the following

Check the “Yes” box if one foreign person

Schedule L–Balance

requirements.

owned at least 25% of (a) the total voting

•

Sheets per Books

More than 50% of the value of the

power of all classes of stock of the RIC

RIC’s total assets at the end of the tax

entitled to vote or (b) the total value of all

The balance sheets should agree with the

year must consist of stock or securities in

classes of stock of the RIC.

RIC’s books and records.

foreign corporations.

•

Line 1. Cash. Include certificates of

The constructive ownership rules of

The RIC must meet the holding period

deposit as cash on line 1.

section 318 apply in determining if a RIC

requirements of section 901(k) with

is foreign owned. See section 6038A(c)(5)

respect to its common and preferred

Line 4. Tax-Exempt Securities. Include

and the related regulations.

stock. If the RIC fails to meet these

on this line:

holding period requirements, the election

1. State and local government

Enter on line 5b(1) the percentage

that allows a RIC to pass through to its

obligations, the interest on which is

owned by the foreign person specified in

shareholders the foreign tax credits for

excludible from gross income under

question 5. For line 5b(2), enter the name

foreign taxes paid by the RIC is

section 103(a), and

of the owner’s country.

disallowed. Although the foreign taxes

2. Stock in another mutual fund or

paid may not be taken as a credit by

Note. If there is more than one

RIC that distributed exempt-interest

either the RIC or the shareholder, they

25%-or-more foreign owner, complete

dividends during the tax year of the RIC.

are still deductible at the fund level.

lines 5b(1) and 5b(2) for the foreign

Line 24. Adjustments to Shareholders’

person with the highest percentage of

Reporting requirements. To make a

Equity. Examples of adjustments to

ownership.

valid election under section 853, in

report on this line include:

addition to timely filing Form 1120-RIC

•

Foreign person. The term “foreign

Unrealized gains and losses on

and checking the box for Schedule K,

person” includes:

securities held “available for sale.”

item 10, the RIC must file a statement of

•

A foreign citizen or nonresident alien.

Foreign currency translation

election, which includes the information

•

An individual who is a citizen of a U.S.

adjustments.

listed under Regulations section

•

possession (but who is not a U.S. citizen

The excess of additional pension

1.853-4(c). The information must be

or resident).

liability over unrecognized prior service

provided on or with a Form 1118, Foreign

•

A foreign partnership.

cost.

Tax Credit, attached to the RIC’s timely

•

A foreign corporation.

Guarantees of employee stock (ESOP)

filed tax return.

•

Any foreign estate or trust within the

debt.

For more information, see Regulations

•

meaning of section 7701(a)(31).

Compensation related to employee

section 1.853-4.

•

A foreign government (or one of its

stock award plans.

Notification to shareholders. If the

agencies or instrumentalities) to the

If the total adjustment to be entered on

RIC makes the election, it must furnish to

extent that it is engaged in the conduct of

line 24 is a negative amount, enter the

its shareholders a written notice

a commercial activity as described in

amount in parentheses.

designating the shareholder’s portion of

section 892.

(1) foreign taxes paid by the RIC to

Owner’s country. For individuals, the

foreign countries and possessions of the

Schedule M–1

term “owner’s country” means the country

United States, and (2) the dividend that

of residence. For all others, it is the

represents income derived from:

Reconciliation of Income (Loss)

country where incorporated, organized,

•

sources within countries described in

per Books With Income per

created, or administered.

section 901(j), and

Return

•

other foreign-source income.

Requirement to file Form 5472. If the

The notice must be mailed to the

Line 5d. Travel and Entertainment.

RIC checked “Yes,” it may have to file

shareholders no later than 60 days after

Form 5472, Information Return of a 25%

Include on line 5d any of the following:

•

the end of the RIC’s tax year. For more

Foreign Owned U.S. Corporation or a

Meals and entertainment not deductible

information, see Regulations section

Foreign Corporation Engaged In a U.S.

under section 274(n).

•

1.853-3.

Trade or Business. Generally, a 25%

Expenses for the use of an

foreign-owned corporation that had a

entertainment facility.

Item 11

•

reportable transaction with a foreign or

The part of business gifts over $25.

•

domestic related party during the tax year

Election under section 853A. A RIC

Expenses of an individual over $2,000,

must file Form 5472. See Form 5472 for

can elect to pass through credits from tax

which are allocable to conventions on

filing instructions.

credit bonds to its shareholders. If the

cruise ships.

-13-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - Internal Revenue Service - 2010 Page 13

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