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The RIC is entitled to hold itself out as a

Permissible methods include:

certain conditions, a RIC may change its tax

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money market fund, or an equivalent of a

Cash,

year without getting the consent.

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money market fund.

Accrual, or

For more information on change of tax

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The RIC provides a statement to the

Any other method authorized by the

year, see Form 1128, Regulations section

partnership that it consents to the

Internal Revenue Code.

1.442-1, and Pub. 538.

partnership’s election to close its books

Accrual method

monthly and that the RIC will include in its

Rounding Off to Whole

taxable income its distributive share of

Generally, a RIC must use the accrual

Dollars

partnership items in a manner consistent

method of accounting if its average annual

with the election. See Rev. Proc. 2002-16

gross receipts exceed $5 million. For more

A RIC may round off cents to whole dollars

for the required contents of the statement of

details, see section 448(c) or Pub. 538,

on its return and schedules. If the RIC does

consent.

Accounting Periods and Methods.

round to whole dollars, it must round all

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The RIC provides the statement of

amounts. To round, drop amounts under 50

consent to the custodian or manager of the

Mark-to-market accounting

cents and increase amounts from 50 cents

partnership by the last day of the second

method

to 99 cents to the next dollar (for example,

month after the month in which the RIC

$1.39 becomes $1 and $2.50 becomes $3).

Generally, dealers in securities must use the

acquires the partnership interest.

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If two or more amounts must be added to

mark-to-market accounting method

The partnership is eligible under Rev.

figure the amount to enter on a line, include

described in section 475. Under this

Proc. 2002-16 to make the monthly closing

cents when adding the amounts and round

method, any security that is inventory to the

election and the election is effective by the

off only the total.

dealer must be included in inventory at its

second month after the month in which the

fair market value (FMV). Any security held

RIC acquires the partnership interest.

Recordkeeping

by a dealer that is not inventory and that is

Statement of consent. The consent to a

held at the close of the tax year is treated as

Keep the RIC’s records for as long as they

partnership’s monthly closing election is

sold at its FMV on the last business day of

may be needed for administration of any

effective for the month in which the RIC

the tax year. Any gain or loss must be taken

provision of the Internal Revenue Code.

acquires the partnership interest, unless the

into account that year in determining gross

Usually, records that support an item of

RIC requests that the consent be effective

income. The gain or loss taken into account

income, deduction, or credit on the return

for either of the two immediately following

is generally treated as ordinary gain or loss.

must be kept for 3 years from the date the

calendar months. In addition to timely

return is due or filed, whichever is later.

providing the partnership with the statement

For details, including exceptions, see

Keep records that verify the RIC’s basis in

of consent, the statement should be filed

section 475, the related regulations, and

property for as long as they are needed to

with Form 1120-RIC for the first tax year in

Rev. Rul. 94-7, 1994-1 C.B. 151.

figure the basis of the original or

which the consent is effective. The monthly

Dealers in commodities and traders in

replacement property.

closing consent (and the partnership’s

securities and commodities may elect to use

election) may be revoked only with the

The RIC should keep copies of all filed

the mark-to-market accounting method. To

consent of the Commissioner. However, the

returns. They help in preparing future and

make the election, the RIC must file a

RIC’s consent becomes ineffective on any

amended returns.

statement describing the election, the first

day when the RIC ceases to be an eligible

tax year the election is to be effective, and in

partner and the partnership’s monthly

Depository Methods of Tax

the case of an election for traders in

closing election is terminated as of the first

securities or commodities, the trade or

Payment

day of any month the partnership is no

business for which the election is made.

longer eligible for the election under Rev.

A RIC must pay the tax due in full no later

Except for new taxpayers, the statement

Proc. 2002-16. For more details, see the

than the 15th day of the 3rd month after the

must be filed by the due date (not including

Revenue Procedure.

end of the tax year. The two methods of

extensions) of the income tax return for the

depositing corporate income taxes are

tax year immediately preceding the election

Assembling the Return

discussed below.

year and attached to that return, or if

applicable, to a request for an extension of

To ensure that the RIC’s tax return is

Electronic Deposit Requirement

correctly processed, attach all schedules

time to file that return. For more details, see

The RIC must make electronic deposits of

and other forms after page 4, Form

Rev. Proc. 99-17, 1999-1 C.B. 503, and

sections 475(e) and (f).

all depository taxes (such as employment

1120-RIC, in the following order.

tax, excise tax, and corporate income tax)

1. Schedule N (Form 1120).

Change in accounting method

using the Electronic Federal Tax Payment

2. Form 4136.

System (EFTPS) in 2006 if:

3. Form 4626.

To change its method of accounting used to

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The total deposits of such taxes in 2004

4. Additional schedules in alphabetical

report taxable income (for income as a

were more than $200,000 or

order.

whole or for the treatment of any material

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The RIC was required to use EFTPS in

5. Additional forms in numerical order.

item), the RIC must file Form 3115,

2005.

Application for Change in Accounting

Complete every applicable entry space

Method. For more information, see Form

If the RIC is required to use EFTPS and

on Form 1120-RIC. Do not enter “See

3115 and Pub. 538.

fails to do so, it may be subject to a 10%

attached” instead of completing the entry

penalty. If the RIC is not required to use

spaces. If more space is needed on the

EFTPS, it may participate voluntarily. To

Accounting Periods

forms or schedules, attach separate sheets

enroll in or get more information about

A RIC must figure its taxable income on the

using the same size and format as the

EFTPS, call 1-800-555-4477 or visit

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

printed forms. If there are supporting

accounting period a RIC uses to keep its

statements and attachments, arrange them

Depositing on Time. For EFTPS deposits

records and report its income and expenses.

in the same order as the schedules or forms

to be made timely, the RIC must initiate the

RICs can use a calendar year or a fiscal

they support and attach them last. Show the

transaction at least one business day before

year.

totals on the printed forms. Also, be sure to

the date the deposit is due.

enter the RIC’s name and EIN on each

For more information about accounting

supporting statement or attachment.

Deposits With Form 8109

periods, see Regulations section 1.441-1,

1.441-2, and Pub. 538.

If the RIC does not use EFTPS, deposit RIC

Accounting Methods

income tax payments (and estimated tax

Change of tax year

Figure taxable income using the method of

payments) with Form 8109, Federal Tax

accounting regularly used in keeping the

Generally, a RIC must get the consent of the

Deposit Coupon. If you do not have a

RIC’s books and records. In all cases, the

IRS before changing its tax year by filing

preprinted Form 8109, use Form 8109-B to

method used must clearly show taxable

Form 1128, Application To Adopt, Change,

make deposits. You can get this form by

income.

or Retain a Tax Year. However, under

calling 1-800-829-4933 or visiting an IRS

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2005 Page 4

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