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Change in accounting method.

RIC (or a related party) paid an advisor a

Generally, the RIC must get IRS consent

fee of at least $250,000.

Required

to change the method of accounting used

3. Certain transactions for which the

to report taxable income (for income as a

RIC (or a related party) has contractual

In addition to Form 1120-RIC, the RIC

whole or for the treatment of any material

protection against disallowance of the tax

may have to file some of the following

item). To do so, the RIC must file Form

benefits.

forms. Also see Pub. 542, Corporations,

3115, Application for Change in

4. Certain transactions resulting in a

for an expanded list of forms the RIC may

Accounting Method. See Form 3115 and

loss of at least $10 million in any single

be required to file.

Pub. 538, Accounting Periods and

year or $20 million in any combination of

Form 976, Claim for Deficiency

Methods, for more information.

years.

Dividends Deductions by a Personal

5. Any transaction identified by the

Holding Company, Regulated Investment

There are some instances when the

IRS by notice, regulation, or other

Company, or Real Estate Investment

RIC can obtain automatic consent from

published guidance as a “transaction of

Trust. Use this form to claim a deficiency

the IRS to change to certain accounting

interest.” See Notice 2009-55, 2009-1

dividend under section 860.

methods. See Rev. Proc. 2011-14,

I.R.B. 170.

Form 1096, Annual Summary and

2011-4 I.R.B. 330, as modified, or its

Transmittal of U.S. Information Returns.

successor. Also, see the Instructions for

For more information, see Regulations

Use Form 1096 to transmit Forms 1099

Form 3115.

section 1.6011-4. Also, see the

and 5498 to the Internal Revenue

Instructions for Form 8886.

Service.

Accounting Periods

Penalties. The RIC may have to pay

Form 1099-DIV, Dividends and

A RIC must figure its taxable income on

a penalty if it is required to disclose a

Distributions. Report certain dividends

the basis of a tax year. A tax year is the

reportable transaction under section 6011

and distributions.

annual accounting period a RIC uses to

and fails to properly complete and file

Form 1099-INT, Interest Income. Report

keep its records and report its income and

Form 8886. Penalties may also apply

interest income.

expenses. RICs can use a calendar year

under section 6707A if the RIC fails to file

Form 2438, Undistributed Capital Gains

or a fiscal year. For more information

Form 8886 with its Form 1120-RIC, fails

Tax Return, must be filed by the RIC if it

about accounting periods, see

to provide a copy of Form 8886 to the

designates undistributed net long-term

Regulations sections 1.441-1 and

Office of Tax Shelter Analysis (OTSA), or

capital gains under section 852(b)(3)(D).

1.441-2.

files a form that fails to include all the

Form 2439, Notice to Shareholder of

information required (or includes incorrect

Change of tax year. Generally, a RIC

Undistributed Long-Term Capital Gains,

information). Other penalties, such as an

must receive consent from the IRS before

must be completed and a copy given to

accuracy-related penalty under section

changing its tax year. To obtain the

each shareholder for whom the RIC paid

6662A, may also apply. See the

consent, file Form 1128, Application To

tax on undistributed net long-term capital

Instructions for Form 8886 for details on

Adopt, Change, or Retain a Tax Year.

gains under section 852(b)(3)(D).

these and other penalties.

However, under certain conditions, a RIC

Form 3520, Annual Return to Report

Reportable transactions by material

may change its tax year without obtaining

Transactions With Foreign Trusts and

advisors. Material advisors to any

the consent.

Receipt of Certain Foreign Gifts, may be

reportable transaction must disclose

required if the RIC received a distribution

See the Instructions for Form 1128

certain information about the reportable

from, was a grantor of, or transferor to, a

and Pub. 538 for more information on

transaction by filing Form 8918, Material

foreign trust during the tax year. See

accounting periods and tax years.

Advisor Disclosure Statement, with the

Question 5 of Schedule N (Form 1120).

IRS. For details, see the Instructions for

Form 8613, Return of Excise Tax on

Rounding Off to

Form 8918.

Undistributed Income of Regulated

Safe harbor under Temporary

Whole Dollars

Investment Companies. If the RIC is liable

Regulations section 1.67-2T(j)(2).

for the 4% excise tax on undistributed

A RIC can round off cents to whole

Generally, shareholders in a nonpublicly

income under section 4982 or makes an

dollars on its return and schedules. If the

offered fund that are individuals or

election under section 4982(e)(4), it must

RIC does round to whole dollars, it must

pass-through entities are treated as

file this return for the calendar year.

round all amounts. To round, drop

having received a dividend in an amount

Form 8927, Determination Under

amounts under 50 cents and increase

equal to the shareholder’s allocable share

860(e)(4) by a Qualified Investment

amounts from 50 cents to 99 cents to the

of affected RIC expenses for the calendar

Entity. Use Form 8927 to establish a

next dollar (for example, $1.39 becomes

year. They are also treated as having

determination date under Section

$1 and $2.50 becomes $3).

paid or incurred an expense described in

860(e)(4) for purposes of making a

section 212 (and subject to the 2%

deficiency dividend distribution.

If two or more amounts must be added

limitation on miscellaneous itemized

to figure the amount to enter on a line,

Statements

deductions) in the same amount for the

include cents when adding the amounts

calendar year.

and round off only the total.

Reportable transaction disclosure

Election. A nonpublicly offered fund

statement. Disclose information for each

may elect to treat its affected RIC

Recordkeeping

reportable transaction in which the RIC

expenses for a calendar year as equal to

participated. Form 8886, Reportable

Keep the RIC’s records for as long as

40% of the amount determined under

Transaction Disclosure Statement, must

they may be needed for administration of

Temporary Regulations section

be filed for each tax year that the federal

any provision of the Internal Revenue

1.67-2T(j)(1)(i) for that calendar year.

income tax liability of the RIC is affected

Code. Usually, records that support an

by its participation in the transaction. The

To make this election, attach to Form

item of income, deduction, or credit on the

following are reportable transactions.

1120-RIC for the tax year that includes

return must be kept for 3 years from the

1. Any listed transaction, which is a

the last day of the calendar year for which

date the return is due or filed, whichever

transaction that is the same as or

the fund makes the election a statement

is later. Keep records that verify the RIC’s

substantially similar to one of the types of

that it is making an election under

basis in property for as long as they are

transactions that the IRS has determined

Temporary Regulations section

needed to figure the basis of the original

to be a tax avoidance transaction and

1.67-2T(j)(2). Once made, the election

or replacement property.

identified by notice, regulation, or other

remains in effect for all subsequent

The RIC should keep copies of all filed

published guidance as a listed

calendar years and may not be revoked

returns. They help in preparing future and

transaction.

without IRS consent. See Temporary

amended returns and in the calculation of

2. Any transaction offered under

Regulations section 1.67-2T for

earnings and profits.

conditions of confidentiality for which the

definitions and other details.

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - Internal Revenue Service - 2011 Page 5

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