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keep records to substantiate the

obligations under section 103(a), the

listed on Form 4626, Alternative

amount of the credit requested.

RIC qualifies under section 852(b)(5) to

Minimum Tax — Corporations. The RIC

pay exempt-interest dividends for the

must file Form 4626 if its investment

Backup withholding. If the RIC had

tax year.

company taxable income (or loss), and

income tax withheld from any payments

retained capital gains not designated

it received, because, for example, it

If this applies, check the “Yes” box

under section 852(b)(3)(D), plus

failed to give the payer its correct EIN,

on line 1 and complete lines 2 through

adjustments and tax preference items,

include the amount withheld in the total

5. See section 852(b)(5)(A) for the

is more than the smaller of:

for line 28i. Show the amount withheld

definition of exempt-interest dividends

•

$40,000 or

in the blank space in the right-hand

and other details.

•

The RIC’s allowable exemption

column between lines 27 and 28i, and

amount (from Form 4626).

enter “Backup Withholding.”

Schedule J—Tax

Line 29. Estimated tax penalty. A

See Form 4626 for definitions and

RIC that does not make estimated tax

details on how to figure the tax.

Computation

payments when due may be subject to

Apportioning tax preference items.

an underpayment penalty for the period

Items of tax preference may be

Line 1

of underpayment. See the instructions

apportioned by the RIC between the

for Form 2220, Underpayment of

A member of a controlled group must

entity and its shareholders in

Estimated Tax by Corporations for

check the box on line 1 and complete

accordance with IRC 59(d)(1)(A).

more information.

and attach Schedule O (Form 1120).

Line 2d—Income Tax

See Schedule O and its instructions for

more information.

Deferred tax under section 1291. If

Schedule A—Deduction

the RIC was a shareholder in a passive

Line 2a–Tax on Investment

for Dividends Paid

foreign investment company (PFIC),

Company Taxable Income

and received an excess distribution or

Column (a) is used to determine the

Members of a controlled group must

disposed of its investment in the PFIC

deduction for dividends paid resulting

use Schedule O (Form 1120) to figure

during the year, it must include the

from income derived from ordinary

the tax for the group. Most corporations

increase in taxes due under section

dividends.

not filing a consolidated return figure

1291(c)(2) in the total for line 2d. On

Column (b) is used to determine the

their tax by using the Tax Rate

the dotted line to the left of line 2d write

deduction for dividends paid resulting

Schedule below.

“Section 1291” and the amount.

from income derived from capital gain

For a RIC that is not a personal

Do not include on line 2d any

dividends.

holding company (PHC). A RIC in

interest due under section 1291(c)(3).

Section 561 (taking into account

compliance with Regulations section

Instead, if this applies, show the

sections 852(b)(7), 852(c)(3)(B), and

1.852-6 regarding disclosure of the

amount of interest owed in the bottom

855(a)) determines the deduction for

RIC’s actual stock ownership (members

margin of page 1 and write “Section

dividends paid. Do not take into

of a controlled group should see the

1291 interest.” For details, see Form

account exempt-interest dividends

instructions for Schedule O (Form

8621, Return by a Shareholder of a

defined in section 852(b)(5) or any

1120)) is not a PHC and should

Passive Foreign Investment Company

amount reported for the tax year on

compute its tax using the Tax Rate

or Qualified Electing Fund.

Form 2438, line 9b. See Regulations

Schedule below:

Additional tax under section 197(f).

section 1.852-11 for information on

A RIC that elects to pay tax on the gain

Tax Rate Schedule

post-October currency or capital losses.

from the sale of an intangible under the

Line 3. Dividends, both ordinary and

related person exception to the

If the investment company taxable income

capital gain, declared and payable to

(line 26, page 1) is:

anti-churning rules should include any

shareholders of record in October,

additional tax due under section

Of the

November, or December are treated as

But not

amount

197(f)(9)(B) in the total for line 2d. On

paid by the RIC and received by each

Over —

over —

Tax is:

over —

the dotted line to the left of line 2d,

shareholder on December 31 of that

write “Section 197” and the amount.

calendar year provided that they are

$50,000

15%

actually paid in January of the following

Line 3a– Foreign Tax Credit

50,000

75,000

$ 7,500 + 25%

50,000

calendar year. Enter on line 3 all such

75,000

100,000

13,750 + 34%

75,000

To find out when a RIC can claim the

100,000

335,000

22,250 + 39% 100,000

dividends not already included on line 1

credit for payment of income tax to a

335,000

10,000,000

113,900 + 34% 335,000

or 2.

foreign country or U.S. possession, see

10,000,000

15,000,000 3,400,000 + 35% 10,000,000

Line 5. Enter the foreign tax paid

15,000,000

18,333,333 5,150,000 + 38% 15,000,000

Form 1118, Foreign Tax Credit —

deduction allowed as an addition to the

18,333,333

—

35%

Corporations. The RIC may not claim

dividends paid deduction under section

this credit if an election under section

853(b)(1)(B). See the instructions for

853 was made for the tax year. See

For a RIC that is a personal holding

Item 10 of Schedule K for information

Election under section 853(a), under

company. A RIC that is not in

on the election available under section

Schedule K, Item 10.

compliance with Regulations section

853(a).

1.852-6 is a PHC and is taxed at a flat

Line 3b

rate of 35% on its investment company

taxable income.

If the RIC can claim the QEV credit,

Schedule B—Income

discussed below, check the box and

Line 2c–Alternative

include the amount of the credit in the

From Tax-Exempt

Minimum Tax (AMT)

total for line 3b.

Obligations

Unless the RIC is treated as a small

Qualified electric vehicle (QEV)

If, at the close of each quarter of the tax

corporation exempt from the AMT, it

credit. Use Form 8834, Qualified

year, at least 50% of the value of the

may owe the AMT if it has any of the

Electric Vehicle Credit, if the RIC can

fund’s assets consisted of tax-exempt

adjustments and tax preference items

claim a credit for the purchase of a

-10-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2006 Page 10

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