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Recognized built-in gains and losses

Figuring your section 1374(b)(2)

credit carryforwards can be used to

generally retain their character (for

deduction (line e) in any subsequent year.

reduce the tax on the RIC’s taxable

example, ordinary income or capital gain)

income.

For these purposes, treat net

and are treated the same as other gains

recognized built-in gain excluded from

Note. The RIC can elect to claim

or losses of the RIC. The RIC’s tax on net

line a as if the full amount had been

certain unused research and minimum tax

recognized built-in gain is treated as a

entered on line a in the current tax year.

credits instead of claiming any additional

loss sustained by the RIC after October

Line a. Enter the amount that would be

first-year special depreciation allowance

31 of the same tax year (see the

the taxable income of the RIC for the tax

for eligible qualified property or qualified

instructions for line i of the Built-in Gains

year if only recognized built-in gain,

extension property placed in service

Tax Worksheet below). See Regulations

recognized built-in loss, and recognized

during the tax year. If the RIC makes the

section 1.337(d)-7 for details.

built-in gain carryover were taken into

election, the unused research and

account.

minimum tax credits must first be used to

Different rules apply to elections to be

reduce the tax on net built-in gain for the

a RIC and to transfers of property in a

Line b. Add the amounts shown on:

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tax year to the greatest extent possible.

carryover basis transaction that occurred

Form 1120-RIC, page 1, line 24,

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Any remaining unused research and

prior to January 2, 2002. For RIC

Form 1120-RIC, Part II, line 1, and

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elections and property transfers before

minimum tax credits are included on line

Form 2438, line 11.

28h to reduce the RIC’s income tax. For

this date, the C corporation is subject to

For this purpose, refigure line 24 on page

more information, see the instructions for

deemed sale treatment on the transferred

1 without regard to any election under

property unless the RIC elects section

line 28h. Also see the Instructions for

section 852(b)(2)(F). Enter the result on

Forms 3800 and 8827, Rev. Proc.

1374 treatment. See Regulations section

line b of the Built-in Gains Tax Worksheet

1.337(d)-6 for information on how to make

2008-65, 2008-44 I.R.B. 1082, and Rev.

below.

Proc. 2009-33, 2009-29 I.R.B. 150.

the election and figure the tax for RIC

Line c. The RIC’s net unrealized built-in

elections and property transfers before

gain is the amount, if any, by which the

Line i. The RIC’s tax on the net

this date. The RIC may also rely on

FMV of the assets of the RIC at the

recognized built-in gain is treated as a

Regulations section 1.337(d)-5 for RIC

beginning of its first RIC year (or as of the

loss sustained by the RIC after October

elections and property transfers that

date the assets were acquired, for any

31 of the same tax year. Deduct the tax

occurred before January 2, 2002.

asset with a basis determined by

attributable to:

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reference to its basis (or the basis of any

Ordinary gain as a deduction for taxes

Built-in Gains Tax Worksheet

other property) in the hands of a C

on Form 1120-RIC, line 12.

Instructions

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corporation) exceeds the aggregate

Short-term capital gain as a short-term

Complete the worksheet below to figure

adjusted basis of such assets at that time.

capital loss on Schedule D (Form 1120),

the built-in gains tax under Regulations

line 1.

Enter on line c the RIC’s net

section 1.337(d)-6 or 1.337(d)-7.

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Long-term capital gain as a long-term

unrealized built-in gain reduced by the net

capital loss on Schedule D (Form 1120),

recognized built-in gain for prior years.

For tax years beginning in 2009 or

line 6.

See sections 1374(c)(2) and (d)(1).

2010, no tax is imposed on the net

recognized built-in gain of a RIC if

Line d. If the amount on line b exceeds

CAUTION

How to Report

the 7th year of the applicable recognition

the amount on line a, the excess is

If the RIC checked the “Other” box, enter

period ended before the tax year. In

treated as a recognized built-in gain in the

the tax or interest on line 6, Schedule J.

figuring the amount to enter on line a,

succeeding tax year.

Also, attach a schedule, showing the

exclude any recognized built-in gains and

Line e. Enter the section 1374(b)(2)

computation of each item included in the

recognized built-on losses arising in the

deduction. Generally, this is any net

total for line 6, and identify (a) the type of

tax year if the 7th year of the applicable

operating loss or capital loss carryforward

tax or interest, and (b) the applicable

recognition period ended before the

(to the extent of net capital gain included

Code section.

beginning of the tax year. This exclusion

in recognized built-in gain for the tax year)

does not apply, however, for the following

arising in tax years for which the RIC was

Line 7–Total Tax

purposes.

a C corporation. A capital loss

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Include any deferred tax on the

Figuring the carryover of net

carryforward must be used to reduce

termination of a section 1294 election

recognized built-in gain in excess of the

recognized built-in gain for the tax year to

applicable to shareholders in a qualified

taxable income limitation;

the greatest extent possible before it can

electing fund in the amount entered on

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be used to reduce the RIC’s taxable

Allocating your taxable income

line 7. See Form 8621, Part V, and How

income.

limitation (line b) between separate

to report, below.

groups of assets as required by

Line h. Credit carryforwards arising in

Regulations section 1.1374-8(d);

tax years for which the RIC was a C

Subtract from the total for line 7 the

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Figuring your net unrealized built-in

corporation must be used to reduce the

deferred tax on the RIC’s share of the

gain limitation in any subsequent year

tax on net built-in gain for the tax year to

undistributed earnings of a qualified

(line c); or

the greatest extent possible before the

electing fund (see Form 8621, Part II).

Built-in Gains Tax Worksheet (keep for your records)

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years c.

d. Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . d.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . . f.

g. Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation

(see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.

Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6 of

Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2009 Page 12

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