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Internal Revenue Code – Title 26 of

Payments with respect to securities

The failure to meet the requirements

the U.S. Code.

loans (as defined in section 512(a)(5));

of section 851(b)(3) is due to reasonable

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Fill-in, print, and save features for most

cause and not due to willful neglect.

Gains from the sale or other disposition

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tax forms.

The RIC disposes of the assets set

of stock or securities (as defined in ICA

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Internal Revenue Bulletins.

forth on the schedule within 6 months

section 2(a)(36)) or foreign currencies;

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Toll-free and email technical support.

after the last day of the quarter that the

Other income (including gains from

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Two releases during the year.

RIC identified the failure.

options, futures, or forward contracts)

— The first release will ship early in

4. De minimis failures. A RIC that fails

derived from the RIC’s business of

January.

to meet the requirements of section

investing in such stock, securities, or

— The final release will ship early in

851(b)(3) for a quarter shall be

currencies; and

March.

considered to have satisfied the

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Net income derived from an interest in

requirements of this test if:

Buy the DVD from the National

a qualified publicly traded partnership (as

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Such failure is due to ownership of

Technical Information Service (NTIS) at

defined in section 851(h)).

assets that the total value does not

for $30 (no

Income from a partnership or trust

exceed:

handling fee) or call 1-877-233-6767

qualifies under the 90% test to the extent

a. One percent of the total value of

toll-free to buy the DVD for $30 (plus a $6

the RIC’s distributive share of such

the RIC’s assets at the end of the quarter

handling fee).

income is from items described above as

for which the measurement is done, or

By phone and in person. You can

realized by the partnership or trust.

b. $10,000,000, and

order forms and publications by calling

Income that a RIC receives in the

c. The RIC disposes of the asset

1-800-TAX-FORM (1-800-829-3676). You

normal course of business as a

following the identification of the failure

can also get most forms and publications

reimbursement from its investment

within 6 months after the last day of the

at your local IRS office.

advisor is qualifying income for purposes

quarter in which the RIC identified the

of the 90% test if the reimbursement is

failure.

includible in the RIC’s gross income.

General Instructions

Note. For special rules regarding failure

A RIC that fails to meet the

to meet the requirements of the income

requirements of section 851(b)(2) will still

and asset tests, see section 851(d)(2).

Purpose of Form

be considered to have satisfied the

Distribution requirements. The RIC’s

requirements of this test if:

Use Form 1120-RIC, U.S. Income Tax

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deduction for dividends paid for the tax

Following the RIC’s identification of the

Return for Regulated Investment

year (as defined in section 561, but

failure, a description of each item of its

Companies, to report the income, gains,

without regard to capital gain dividends)

gross income described is set forth in a

losses, deductions, credits, and to figure

equals or exceeds the sum of:

schedule for the tax year.

the income tax liability of a regulated

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90% of its investment company taxable

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Failure to meet the requirements of this

investment company (RIC) as defined in

income determined without regard to

test is due to reasonable cause and not

section 851.

section 852(b)(2)(D); and

due to willful neglect.

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90% of the excess of the RIC’s interest

Who Must File

The asset test:

income excludable from gross income

A domestic corporation that meets certain

under section 103(a) over its deductions

1. At the end of each quarter of the

conditions (discussed below) must file

disallowed under sections 265 and

RIC’s tax year, at least 50% of the value

Form 1120-RIC if it elects to be treated as

171(a)(2).

of its assets must be invested in the

a RIC for the tax year (or has made an

following items:

A RIC that does not satisfy the

election for a prior tax year and the

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Cash and cash items (including

distribution requirements will be

election has not been terminated or

receivables);

subject to taxation as a C

revoked). The election is made by

CAUTION

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Government securities;

corporation.

computing taxable income as a RIC on

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Securities of other RICs; and

Earnings and profits. The RIC must

Form 1120-RIC.

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Securities of other issuers, except

either have been a RIC for all tax years

General Requirements To

that the investment in a single issuer of

ending after November 7, 1983, or, at the

securities may not exceed 5% of the

end of the current tax year, had no

Qualify as a RIC

value of the RIC’s assets or 10% of the

accumulated earnings and profits from

any non-RIC tax year.

outstanding voting securities of the issuer

The term “regulated investment company”

(except as provided in section 851(e)).

applies to any domestic corporation that:

Note. For this purpose, current year

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Is registered throughout the tax year as

2. At the end of each quarter of the

distributions are treated as made from the

a management company or unit

RIC’s tax year, no more than 25% of the

earliest earnings and profits accumulated

investment trust under the Investment

value of the RIC’s assets may be invested

in any non-RIC tax year. See section

Company Act of 1940 (ICA),

in the securities of:

852(c)(3). Also see section 852(e) for

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Has an election in effect under the ICA

procedures that may allow the RIC to

A single issuer (excluding

to be treated as a business development

government securities or securities of

avoid disqualification for the initial year if

company, or

other RICs);

the RIC did not meet this requirement.

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Is a common trust fund or similar fund

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Two or more issuers controlled by

Definition of a Fund

that is neither an investment company

the RIC and engaged in the same or

under section 3(c)(3) of the ICA nor a

related trades or businesses; or

The term “fund” refers to a separate

common trust fund as defined under

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One or more qualified publicly

portfolio of assets, whose beneficial

section 584(a).

traded partnerships as defined in section

interests are owned by the holders of a

851(h).

class or series of stock of the RIC that is

Other Requirements

See sections 851(b)(3) and 851(c) for

preferred over all other classes or series

In addition, the RIC must meet the (1)

further details.

for that portfolio of assets.

income test, (2) asset test, and (3)

3. A RIC that fails to meet the

When To File

distribution requirements explained

requirements of section 851(b)(3) for a

below.

quarter shall be considered to have

Generally, a RIC must file its income tax

satisfied the requirements of this test if:

The income test: At least 90% of its

return by the 15th day of the 3rd month

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gross income must be derived from the

After the RIC identifies that it did not

after the end of its tax year. A new RIC

following items:

satisfy the asset test, the RIC must

filing a short period return must generally

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Dividends;

provide a description of each asset that

file by the 15th day of the 3rd month after

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Interest (including tax-exempt interest

causes the RIC to fail to satisfy the

the short period ends. A RIC that has

income);

requirements at the close of the quarter.

dissolved must generally file by the 15th

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - Internal Revenue Service - 2011 Page 2

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