Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2006 Page 12

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reduce the tax on the investment
Question 5
Item 8
company taxable income.
Check the “Yes” box if one foreign
Tax-exempt interest. Show any
Line i. The RIC’s tax on the net
person owned at least 25% of (a) the
tax-exempt interest received or
recognized built-in gain is treated as a
total voting power of all classes of stock
accrued. Include any exempt-interest
loss sustained by the RIC after October
of the RIC entitled to vote or (b) the
dividends received as a shareholder in
31 of the same tax year. Deduct the tax
total value of all classes of stock of the
a mutual fund or other RIC.
attributable to:
RIC.
Ordinary gain as a deduction for
Item 10
The constructive ownership rules of
taxes on Form 1120-RIC, line 12.
section 318 apply in determining if a
Election under section 853(a). A RIC
Short-term capital gain as a
may make an irrevocable election
RIC is foreign owned. See section
short-term capital loss on Schedule D
6038A(c)(5) and the related regulations.
under section 853(a) to allow its
(Form 1120), line 1.
shareholders to apply their share of the
Long-term capital gain as a long-term
Enter on line 5b(1) the percentage
foreign taxes paid by the RIC either as
capital loss on Schedule D (Form
owned by the foreign person specified
a credit or a deduction. If the RIC
1120), line 6.
in question 5. For line 5b(2), enter the
makes this election, the amount of
Line 7–Total Tax
name of the owner’s country.
foreign taxes it paid during the tax year
may not be taken as a credit or a
Include any deferred tax on the
Note. If there is more than one
deduction on Form 1120-RIC, but may
termination of a section 1294 election
25%-or-more foreign owner, complete
be claimed on Form 1120-RIC,
applicable to shareholders in a qualified
lines 5b(1) and 5b(2) for the foreign
Schedule A, line 5, as an addition to the
electing fund in the amount entered on
person with the highest percentage of
dividends-paid deduction.
line 7. See Form 8621, Part V, and
ownership.
“How to report,” below.
Eligibility. To qualify to make the
Foreign person. The term “foreign
election, the RIC must meet the
Subtract from the total for line 7 the
person” includes:
following requirements.
deferred taxes on the RIC’s share of
A foreign citizen or nonresident alien.
More than 50% of the value of the
the undistributed earnings of a qualified
An individual who is a citizen of a
RIC’s total assets at the end of the tax
electing fund (see Form 8621, Part II).
U.S. possession (but who is not a U.S.
year must consist of stock or securities
How to report. Attach a schedule
citizen or resident).
in foreign corporations.
showing the computation of each item
The RIC must meet the holding
A foreign partnership.
included in, or subtracted from, the total
period requirements of section 901(k)
A foreign corporation.
for line 7. On the dotted line next to line
with respect to its common and
7, enter the amount of tax or interest,
Any foreign estate or trust within the
preferred stock. If the RIC fails to meet
identify it as tax or interest, and specify
meaning of section 7701(a)(31).
these holding period requirements, the
the code section that applies.
A foreign government (or one of its
election that allows a RIC to pass
agencies or instrumentalities) to the
through to its shareholders the foreign
extent that it is engaged in the conduct
tax credits for foreign taxes paid by the
Schedule K–Other
of a commercial activity as described in
RIC is disallowed. Although the foreign
section 892.
Information
taxes paid may not be taken as a credit
by either the RIC or the shareholder,
Owner’s country. For individuals, the
The following instructions apply to
they are still deductible at the fund
term “owner’s country” means the
questions 1 through 11. Complete all
level.
country of residence. For all others, it is
items that apply.
the country where incorporated,
To make a valid election, in addition
Question 3
organized, created, or administered.
to timely filing Form 1120-RIC and
checking the box for item 10, the RIC
Check the “Yes” box if the RIC is a
Requirement to file Form 5472. If the
must file:
subsidiary in a parent-subsidiary
RIC checked “Yes,” it may have to file
Form 1099-DIV and Form 1096,
controlled group. This applies even if
Form 5472, Information Return of a
including the statement required by
the RIC is a subsidiary member of one
25% Foreign Owned U.S. Corporation
Regulations section 1.853-4; and
group and the parent corporation of
or a Foreign Corporation Engaged In a
Form 1118, modified to become a
another.
U.S. Trade or Business. Generally, a
statement supporting the RIC’s
Note. If the RIC is an “excluded
25% foreign-owned corporation that
election.
member” of a controlled group (see
had a reportable transaction with a
section 1563(b)(2)), it is still considered
foreign or domestic related party during
Notification. If the RIC makes the
a member of a controlled group for this
the tax year must file Form 5472. See
election, it must furnish to its
purpose.
Form 5472 for filing instructions.
shareholders a written notice
Built-in Gains Tax Worksheet (keep for your records)
a.
Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.
b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.
c.
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.
e.
Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.
f.
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 h.
i.
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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