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of the tax year if the contributions were

deduction. See sections 6652(e) and

of the tax paid by another RIC or a REIT on

authorized by the board of directors during

6662(f).

undistributed long-term capital gains

the tax year. Attach a declaration to the

included in the RIC’s income. Attach Form

Travel, meals, and entertainment. Subject

return stating that the resolution authorizing

2439 to Form 1120-RIC.

to certain limitations and restrictions, the

the contributions was adopted by the board

RIC can deduct ordinary and necessary

Line 28g. Credit for Federal Tax on Fuels.

of directors during the tax year. The

travel, meals, and entertainment expenses

Complete and attach Form 4136, Credit for

declaration must include the date the

incurred in its trade or business.

Federal Tax Paid on Fuels, if the RIC

resolution was adopted.

qualifies to take this credit.

Travel. The RIC cannot deduct travel

Limitation on deduction. The total

expenses of any individual accompanying a

Backup withholding. If the RIC had

amount claimed cannot be more than 10%

corporate officer or employee unless:

income tax withheld from any payments it

•

of taxable income computed without regard

That individual is an employee of the RIC;

received, because, for example, it failed to

to the following:

and

•

give the payer its correct EIN, include the

•

Any deduction for contributions.

His or her travel is for a bona fide

•

amount withheld in the total for line 28h.

The special deductions on line 25, relating

business purpose that would otherwise be

Show the amount withheld in the blank

to dividends paid.

deductible by that individual.

•

space in the right-hand column between

The deduction allowed under section 249,

Meals and entertainment. Generally,

lines 27 and 28h, and enter “Backup

relating to any premium paid or incurred

the RIC can deduct only 50% of the amount

Withholding.”

upon the repurchase of a convertible bond.

•

otherwise allowable for meals and

Line 29. Estimated Tax Penalty. A RIC

Any capital loss carryback to the tax year

entertainment expenses paid or incurred in

that does not make estimated tax payments

under section 1212(a)(1).

its trade or business.

when due may be subject to an

Temporary suspension of 10%

Amounts treated as compensation.

underpayment penalty for the period of

limitation. A corporation may elect to

Generally, the RIC may be able to deduct

underpayment. See the instructions for

deduct qualified cash contributions without

otherwise nondeductible entertainment,

Form 2220, Underpayment of Estimated Tax

regard to the general 10% limit if the

amusement or recreation expenses if the

by Corporations.

contributions were made after August 27,

amounts are treated as compensation to the

2005, and before January 1, 2006, to a

recipient and reported on Form W-2 for an

qualified charitable organization (other than

employee or on Form 1099-MISC for an

Schedule A—Deduction

certain private foundations described in

independent contractor.

section 509(a)(3)), for Hurricane Katrina,

for Dividends Paid

However, if the recipient is an officer,

Rita, or Wilma relief efforts. The total

director, or beneficial owner (directly or

amount claimed cannot be more than

Column (a) is used to determine the

indirectly) of more than 10% of any class of

taxable income as computed above

deduction for dividends paid resulting from

stock, the deductible expense is limited. See

substituting “100%” for “10%.” Excess

income derived from ordinary dividends.

section 274(e)(2) and Notice 2005-45,

qualified contributions are carried over to the

2005-24 I.R.B. 1228.

Column (b) is used to determine the

next 5 years. Attach a statement

deduction for dividends paid resulting from

substantiating that the contributions are for

See section 274 and Pub. 463 for a

income derived from capital gain dividends.

Hurricane Katrina, Rita, or Wilma relief

more extensive discussion of these topics.

efforts and indicating the amount of qualified

Do not include any amount reported for

Lobbying expenses. Generally, lobbying

contributions for which the election is made.

the tax year on Form 2438, line 9b. Section

expenses are not deductible. These

See Pub. 4492.

561 (taking into account sections 852(b)(7),

expenses include:

•

Carryover. Charitable contributions over

852(c)(3)(B), and 855(a)) determines the

Amounts paid or incurred in connection

the 10% limitation cannot be deducted for

deduction for dividends paid. Do not take

with influencing federal or state legislation

the tax year but may be carried over to the

into account exempt-interest dividends

(but not local legislation) or

•

next 5 tax years subject to certain

defined in section 852(b)(5). See

Amounts paid or incurred in connection

limitations.

Regulations section 1.852-11.

with any communication with certain federal

executive branch officials in an attempt to

For more information on charitable

Line 3. Dividends, both ordinary and capital

influence the official actions or positions of

contributions, including substantiation and

gain, declared and payable to shareholders

the officials. See Regulations section

recordkeeping requirements, see the

of record in October, November, or

1.162-29 for the definition of “influencing

regulations under section 170 and Pub. 526,

December are treated as paid by the RIC

legislation.”

Charitable Contributions.

and received by each shareholder on

Dues and other similar amounts paid to

December 31 of that calendar year provided

Contributions to organizations

certain tax-exempt organizations may not be

that they are actually paid in January of the

conducting lobbying activities.

deductible. See section 162(e)(3). Certain

following calendar year. Enter on line 3 all

Contributions made to an organization that

in-house lobbying expenditures that do not

such dividends not already included on line

conducts lobbying activities are not

exceed $2,000 are deductible. For

1 or 2.

deductible if:

•

information on contributions to charitable

The lobbying activities relate to matters of

Line 5. Enter the foreign tax paid deduction

organizations that conduct lobbying

direct financial interest to the donor’s trade

allowed as an addition to the dividends paid

activities, see section 170(f)(9).

or business and

deduction under section 853(b)(1)(B). See

•

The principal purpose of the contribution

For more information on other deductions

the instructions for Item 10 of Schedule K for

was to avoid federal income tax by obtaining

that may apply to RICs, see Pub. 535.

information on the election available under

a deduction for activities that would have

section 853(a).

Line 24. Taxable Income Before

been nondeductible under the lobbying

Deduction for Dividends Paid

expense rules if conducted directly by the

At-risk rules. Generally, at-risk rules

donor.

Schedule B—Income From

under section 465 apply to closely held RICs

Pension, profit-sharing, etc., plans.

engaged in any activity as a trade or

Tax-Exempt Obligations

Include contributions to qualified pension,

business or for the production of income. If

profit-sharing, or other funded-deferred

the RIC is closely-held, consult section 465

If, at the close of each quarter of the tax

compensation plans. Employers who

for the applicable rules.

year, at least 50% of the value of the fund’s

maintain such a plan generally must file

assets consisted of tax-exempt obligations

Form 5500, Annual Return/Report of

Tax and Payments

under section 103(a), the RIC qualifies

Employee Benefit Plan, even if the plan is

under section 852(b)(5) to pay

Line 28b. Estimated Tax Payments. Enter

not a qualified plan under the Internal

exempt-interest dividends for the tax year.

any estimated tax payments the RIC made

Revenue Code. The filing requirement

for the tax year.

applies even if the RIC does not claim a

If this applies, check the “Yes” box on

deduction for the current tax year. There are

Line 28f. Credit for Tax Paid on

line 1 and complete lines 2 through 5. See

penalties for failure to file these forms on

Undistributed Capital Gains. Enter the

section 852(b)(5)(A) for the definition of

time and for overstating the pension plan

credit (from Form 2439) for the RIC’s share

exempt-interest dividends and other details.

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2005 Page 8

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