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Lobbying expenses. Generally, lobbying

the penalty if its tax liability is $500 or more

expenses are not deductible. These expenses

and it did not timely pay the smaller of:

Schedule J

•

include:

100% of its alternative minimum tax minus

•

Amounts paid or incurred in connection with

the credit for Federal tax paid on fuels for 2003

Tax Computation

influencing Federal or state legislation (but not

as shown on the return or

•

local legislation) or

100% of its prior year’s tax.

Lines 1 and 2

•

Amounts paid or incurred in connection with

See section 6655 for details and exceptions,

Members of a controlled group. A member

any communication with certain Federal

including special rules for large corporations.

executive branch officials in an attempt to

Use Form 2220, Underpayment of

of a controlled group, as defined in section

1563, must check the box on line 1 and

influence the official actions or positions of the

Estimated Tax by Corporations, to see if the

complete lines 2a and 2b of Schedule J.

officials. See Regulations section 1.162-29 for

fund owes a penalty and to figure the amount

the definition of “influencing legislation.”

of the penalty. Generally, the fund does not

Line 2a. Members of a controlled group are

Dues and other similar amounts paid to

have to file this form because the IRS can

entitled to one $50,000, one $25,000, and one

certain tax-exempt organizations may not be

figure the amount of any penalty and bill the

$9,925,000 taxable income bracket amount (in

deductible. See section 162(e)(3). If certain

fund for it. However, even if the fund does not

that order) on line 2a.

in-house lobbying expenditures do not exceed

owe the penalty, the fund must complete and

$2,000, they are deductible. For information on

attach Form 2220 if:

When a controlled group adopts or later

•

contributions to charitable organizations that

The annualized income or adjusted seasonal

amends an apportionment plan, each member

conduct lobbying activities, see the instructions

installment method is used or

must attach to its tax return a copy of its

•

above. For more information on lobbying

The fund is a large corporation computing its

consent to this plan. The copy (or an attached

statement) must show the part of the amount in

expenses, see section 162(e).

first required installment based on the prior

year’s tax. See the Instructions for Form 2220

each taxable income bracket apportioned to

Line 24 –Taxable Income Before

for the definition of a large corporation.

that member. See Regulations section

1.1561-3(b) for other requirements and for the

If Form 2220 is attached, check the box on

Deduction for Dividends Paid

line 29, page 1, Form 1120-RIC, and enter the

time and manner of making the consent.

At-risk rules. Generally, special at-risk rules

amount of any penalty on this line.

Unequal apportionment plan. Members

under section 465 apply to closely held funds

of a controlled group may elect an unequal

engaged in any activity as a trade or business

apportionment plan and divide the taxable

or for the production of income. These funds

Schedule A

income brackets as they want. There is no

may have to adjust the amount on line 24.

need for consistency among taxable income

The at-risk rules do not apply to:

Deduction for Dividends Paid

brackets. Any member may be entitled to all,

•

Holding real property placed in service by

some, or none of the taxable income brackets.

Column (a) is used to determine the deduction

the fund before 1987;

However, the total amount for all members

•

for dividends paid resulting from ordinary

Equipment leasing under sections 465(c)(4),

cannot be more than the total amount in each

dividends.

(5), and (6); and

taxable income bracket.

•

Any qualifying business of a qualified

Column (b) is used to determine the

Equal apportionment plan. If no

corporation under section 465(c)(7).

deduction for dividends paid resulting from

apportionment plan is adopted, members of a

However, the at-risk rules do apply to the

capital gain dividends.

controlled group must divide the amount in

holding of mineral property. For more

Do not include any amount reported for the

each taxable income bracket equally among

information, see section 465 and Form 6198,

tax year on Form 2438, line 9b. Section 561

themselves. For example, Controlled Group AB

At-Risk Limitations.

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

consists of Corporation A and Corporation B.

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

They do not elect an apportionment plan.

Tax and Payments

deduction for dividends paid. Do not take into

Therefore, each fund is entitled to:

•

account exempt-interest dividends defined in

$25,000 (one-half of $50,000) on line 2a(1);

•

Line 28b – Estimated Tax Payments

section 852(b)(5). See Regulations section

$12,500 (one-half of $25,000) on line 2a(2);

1.852-11.

and

Enter any estimated tax payments the fund

•

$4,962,500 (one-half of $9,925,000) on line

made for the tax year.

Line 3

2a(3).

Line 28f – Credit for Tax Paid on

Dividends, both ordinary and capital gain,

Line 2b. Members of a controlled group are

declared and payable to shareholders of record

Undistributed Capital Gains

treated as one group to figure the applicability

in October, November, or December are

of the additional 5% tax and the additional 3%

Enter the credit (from Form 2439, Notice to

treated as paid by the fund and received by

tax. If an additional tax applies, each member

Shareholder of Undistributed Long-Term

each shareholder on December 31 of that

will pay that tax based on the part of the

Capital Gains) for the fund’s share of the tax

calendar year provided that they are actually

amount used in each taxable income bracket to

paid by another RIC or a REIT on undistributed

paid in January of the following calendar year.

reduce that member’s tax. See section

long-term capital gains included in the fund’s

Enter on line 3 all such dividends not already

1561(a). If an additional tax applies, attach a

income. Attach Form 2439 to Form 1120-RIC.

entered on line 1 or 2.

schedule showing the taxable income of the

Line 28g – Credit for

entire group and how the fund figured its share

Line 5

of the additional tax.

Federal Tax on Fuels

Enter the foreign tax paid deduction allowed as

Line 2b(1). Enter the fund’s share of the

Complete and attach Form 4136, Credit for

an addition to the dividends paid deduction

additional 5% tax on line 2b(1).

Federal Tax Paid on Fuels, if the fund qualifies

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

to take this credit.

instructions for Item 10, Schedule K, on page

Line 2b(2). Enter the fund’s share of the

12, for information on the election available

additional 3% tax on line 2b(2).

Line 28h

under section 853(a).

Line 3a

Add the amounts on lines 28d through 28g and

enter the total on line 28h.

Note: Members of a controlled group must

attach to Form 1120-RIC a statement showing

Schedule B

Backup withholding. If the fund had income

the computation of the tax entered on line 3a.

tax withheld from any payments it received,

You may use the Tax Computation

because, for example, it failed to give the payer

Income From

Worksheet for Members of a Controlled

its correct EIN, include the amount withheld in

Tax-Exempt Obligations

Group on page 10 for this purpose.

the total for line 28h. This type of withholding is

If, at the close of each quarter of the tax year,

The fund computes its investment company

called “Backup Withholding.” Show the amount

at least 50% of the value of the fund’s assets

withheld in the blank space in the right-hand

taxable income tax as follows:

consisted of tax-exempt obligations under

column between lines 27 and 28h, and write

1. A fund that is not a personal holding

section 103(a), the fund qualifies under section

“Backup Withholding.”

company and is in compliance with

852(b)(5) to pay exempt-interest dividends for

Regulations section 1.852-6 regarding

the tax year.

Line 29 –Estimated Tax Penalty

disclosure of the fund’s actual stock ownership

A fund that does not make estimated tax

Check the “Yes” box on line 1 of Schedule

(members of a controlled group should see the

payments when due may be subject to an

B and complete lines 2 through 5. See section

instructions above for lines 1 and 2) computes

underpayment penalty for the period of

852(b)(5) for the definition of exempt-interest

its tax using the Tax Rate Schedule on page

underpayment. Generally, a fund is subject to

dividends and other details.

10.

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2003 Page 9

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