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Use Form 1096 to transmit Forms 1099

election to close its books at the end of

Statements

and 5498 to the Internal Revenue

each month. See Rev. Proc. 2002-16

Service.

for details.

Safe harbor under

Eligibility. A RIC is entitled to take into

Form 1099-DIV, Dividends and

Temporary Regulations

account its distributive share of

Distributions. Report certain dividends

section 1.67-2T(j)(2)

partnership items on a monthly basis if:

and distributions.

•

The RIC is entitled to hold itself out

Generally, shareholders in a

Form 1099-INT, Interest Income.

as a money market fund, or an

nonpublicly offered fund that are

Report interest income.

equivalent of a money market fund.

individuals or pass-through entities are

•

The RIC provides a statement to the

Form 2438, Undistributed Capital

treated as having received a dividend in

partnership that it consents to the

Gains Tax Return. If the RIC

an amount equal to the shareholder’s

partnership’s election to close its books

designates undistributed capital gains

allocable share of affected RIC

monthly and that the RIC will include in

under section 852(b)(3)(D), it must file

expenses for the calendar year. They

its taxable income its distributive share

this return and pay tax on the gains

are also treated as having paid or

of partnership items in a manner

designated by the 30th day after the

incurred an expense described in

consistent with the election. See Rev.

end of the RIC’s tax year. In addition, a

section 212 (and subject to the 2%

Proc. 2002-16 for the required contents

copy of Form 2438 (with Copy A of all

limitation on miscellaneous itemized

of the statement of consent.

Forms 2439) must be attached to Form

deductions) in the same amount for the

•

The RIC provides the statement of

1120-RIC when filed.

calendar year.

consent to the custodian or manager of

Election. A nonpublicly offered fund

Form 2439, Notice to Shareholder of

the partnership by the last day of the

may elect to treat its affected RIC

Undistributed Long-Term Capital Gains.

second month after the month in which

expenses for a calendar year as equal

If the RIC filed Form 2438, it must

the RIC acquires the partnership

to 40% of the amount determined under

complete Form 2439 for each

interest.

•

Temporary Regulations section

shareholder for whom it paid tax on

The partnership is eligible under Rev.

1.67-2T(j)(1)(i) for that calendar year.

undistributed capital gains and furnish a

Proc. 2002-16 to make the monthly

copy to the shareholder by the 60th day

closing election and the election is

To make this election, attach to

after the end of the RIC’s tax year.

effective by the second month after the

Form 1120-RIC for the tax year that

month in which the RIC acquires the

includes the last day of the calendar

Form 8613, Return of Excise Tax on

partnership interest.

year for which the fund makes the

Undistributed Income of Regulated

election a statement that it is making an

Statement of consent. The consent to

Investment Companies. If the RIC is

election under Temporary Regulations

a partnership’s monthly closing election

liable for the 4% excise tax on

section 1.67-2T(j)(2). Once made, the

is effective for the month in which the

undistributed income under section

election remains in effect for all

RIC acquires the partnership interest,

4982 or makes an election under

subsequent calendar years and may

unless the RIC requests that the

section 4982(e)(4), it must file this

not be revoked without IRS consent.

consent be effective for either of the

return for the calendar year.

See Temporary Regulations section

two immediately following calendar

Form 8886, Reportable Transaction

1.67-2T for definitions and other details.

months. In addition to timely providing

Disclosure Statement. File Form 8886 if

the partnership with the statement of

Notice to shareholders

the RIC or an investment vehicle that is

consent, the statement should be filed

at least 95% owned by one or more

A RIC must notify its shareholders

with Form 1120-RIC for the first tax

RICs at all time during the course of a

within 60 days after the close of its tax

year in which the consent is effective.

transaction participated in a listed

year of the distribution made during the

The monthly closing consent (and the

transaction. Listed transactions include

tax year that qualifies for the

partnership’s election) may be revoked

transactions that are the same as or

dividends-received deduction under

only with the consent of the

substantially similar to one of the types

section 243. For purposes of the

Commissioner. However, the RIC’s

of transactions that the IRS has

dividends-received deduction, a capital

consent becomes ineffective on any

determined to be a tax avoidance

gain dividend received from a RIC is

day when the RIC ceases to be an

transaction. These transactions are

not treated as a dividend. The capital

eligible partner and the partnership’s

identified by notice, regulation, or other

gain dividend is treated as a long-term

monthly closing election is terminated

form of published guidance in the I.R.B.

capital gain by the shareholder.

as of the first day of any month the

as a listed transaction.

partnership is no longer eligible for the

Consent to partnership

election under Rev. Proc. 2002-16. For

See the instructions for Form 8886

election to close its books

more details, see the Revenue

for more details on the conditions that

Procedure.

apply to determine if a RIC participated

monthly

in a listed transaction and needs to file

Certain money market funds that obtain

Assembling the Return

this form.

an interest in an eligible partnership

To ensure that the RIC’s tax return is

Reportable transactions by material

that invests in assets exempt from

correctly processed, attach all

advisors. Until further guidance is

taxation under section 103 may be

schedules and other forms after page

issued, material advisors who provide

qualified to pay exempt-interest

4, Form 1120-RIC, in the following

material aid, assistance, or advice with

dividends to their shareholders. To

order.

respect to any reportable transaction,

qualify for payment of exempt-interest

must use Form 8264, Application for

dividends, a RIC must meet the

1. Schedule N (Form 1120).

Registration of a Tax Shelter, to

quarterly net asset value (NAV)

2. Schedule O (Form 1120).

disclose reportable transactions in

requirements under section 852(b)(5).

3. Form 4626.

accordance with interim guidance

To maintain the required NAV at the

4. Form 4136.

provided in Notice 2004-80, 2004-50

end of each quarter, the RIC may take

5. Additional schedules in

I.R.B. 963; Notice 2005-17, 2005-8

into account on a monthly basis its

alphabetical order.

I.R.B. 606; and Notice 2005-22,

distributive share of partnership items if

6. Additional forms in numerical

2005-12 I.R.B. 756.

the eligible partnership makes a proper

order.

-4-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2006 Page 4

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