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income brackets as they want. There is no

Tax Computation Worksheet for Members

need for consistency among taxable income

of a Controlled Group (keep for your records)

Schedule A—Deduction for

brackets. Any member may be entitled to all,

Note: Each member of a controlled group must

Dividends Paid

some, or none of the taxable income brackets.

compute the tax on its investment company taxable

However, the total amount for all members

income using this worksheet (except RICs that are

Column (a) is used to determine the

cannot be more than the total amount in each

personal holding companies or that are not in

deduction for dividends paid resulting from

taxable income bracket.

compliance with Regulations section 1.852-6, see

ordinary dividends.

Line 3a above.)

Column (b) is used to determine the

Equal apportionment plan. If no

deduction for dividends paid resulting from

1. Enter investment company taxable

apportionment plan is adopted, members of a

income (line 26, page 1) . . . . . . . .

capital gain dividends.

controlled group must divide the amount in

Do not include any amount reported for the

2. Enter line 1 or the RIC’s share of the

each taxable income bracket equally among

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

$50,000 taxable income bracket,

themselves. For example, Controlled Group AB

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

whichever is less . . . . . . . . . . . . .

consists of Corporation A and Corporation B.

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

3. Subtract line 2 from line 1 . . . . . . .

They do not elect an apportionment plan.

deduction for dividends paid. Do not take into

Therefore, each RIC is entitled to:

account exempt-interest dividends defined in

4. Enter line 3 or the RIC’s share of the

•

$25,000 taxable income bracket,

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

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

whichever is less . . . . . . . . . . . . .

1.852-11.

•

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

Line 3. Dividends, both ordinary and capital

5. Subtract line 4 from line 3 . . . . . . .

and

gain, declared and payable to shareholders of

•

6. Enter line 5 or the RIC’s share of the

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

record in October, November, or December are

$9,925,000 taxable income bracket,

2a(3).

treated as paid by the RIC and received by

whichever is less . . . . . . . . . . . . .

each shareholder on December 31 of that

7. Subtract line 6 from line 5 . . . . . . .

calendar year provided that they are actually

Line 2b. Members of a controlled group are

paid in January of the following calendar year.

treated as one group to figure the applicability

8. Multiply line 2 by 15% . . . . . . . . . .

Enter on line 3 all such dividends not already

of the additional 5% tax and the additional 3%

9. Multiply line 4 by 25% . . . . . . . . . .

entered on line 1 or 2.

tax. If an additional tax applies, each member

Line 5. Enter the foreign tax paid deduction

10. Multiply line 6 by 34% . . . . . . . . . .

will pay that tax based on the part of the

allowed as an addition to the dividends paid

amount used in each taxable income bracket to

11. Multiply line 7 by 35% . . . . . . . . . .

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

reduce that member’s tax. See section

instructions for Item 10, Schedule K, on page

12. If the taxable income of the controlled

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

12, for information on the election available

group exceeds $100,000, enter this

schedule showing the taxable income of the

under section 853(a).

member’s share of the smaller of: 5%

entire group and how the RIC figured its share

of the taxable income in excess of

of the additional tax.

$100,000, or $11,750. (see the

instructions for line 2b above) . . . . .

Schedule B—Income From

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

13. If the taxable income of the controlled

Tax-Exempt Obligations

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

group exceeds $15 million, enter this

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

member’s share of the smaller of 3%

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

of the taxable income in excess of $15

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

million, or $100,000. (see the

consisted of tax-exempt obligations under

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

instructions for line 2b above) . . . . .

section 103(a), the RIC qualifies under section

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

14. Total. Add lines 8 through 13. Enter

the tax year.

Line 3a –Tax on Investment

here and on line 3a, Schedule J . . . .

Check the “Yes” box on line 1 of Schedule

Company Taxable Income

B and complete lines 2 through 5. See section

Line 3c –Alternative Minimum Tax

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

For a RIC that is not a personal holding

dividends and other details.

company. If it is in compliance with

(AMT)

Regulations section 1.852-6 regarding

Unless the RIC is treated as a small

disclosure of the RIC’s actual stock ownership

corporation exempt from the AMT, it may owe

Schedule J—Tax

(members of a controlled group should see the

the AMT if it has any of the adjustments and

instructions above for lines 1 and 2), then it

tax preference items listed on Form 4626,

Computation

Alternative Minimum Tax — Corporations.

should compute its tax using the Tax Rate

Note. Members of a controlled group must

Schedule below:

The RIC must file Form 4626 if its

attach to Form 1120-RIC a statement showing

investment company taxable income (or loss)

the computation of the tax entered on line 3a.

Tax Rate Schedule

and retained capital gains not designated

You may use the “Tax Computation Worksheet

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

for Members of a Controlled Group” below.

If the investment company taxable income

and tax preference items is more than the

(line 26, page 1) is:

Lines 1 and 2

smaller of:

•

Of the

$40,000 or

•

Members of a controlled group. A member

But not

amount

The RIC’s allowable exemption amount

of a controlled group, as defined in section

Over —

over —

Tax is:

over —

(from Form 4626).

1563, must check the box on line 1 and

See Form 4626 for details.

complete lines 2a and 2b of Schedule J.

$50,000

15%

Exemption for small corporations. A RIC

Line 2a. Members of a controlled group are

is treated as a small corporation exempt from

50,000

75,000

$ 7,500 + 25%

50,000

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

the AMT for its tax year beginning in 2004 if

75,000

100,000

13,750 + 34%

75,000

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

that year is the RIC’s first tax year in existence

100,000

335,000

22,250 + 39% 100,000

that order) on line 2a.

(regardless of its gross receipts) or:

335,000

10,000,000

113,900 + 34% 335,000

When a controlled group adopts or later

10,000,000

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

1. It was treated as a small corporation

amends an apportionment plan, each member

15,000,000

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

exempt from the AMT for all prior tax years

must attach to its tax return a copy of its

18,333,333

- - - - -

35%

beginning after 1997 and

consent to this plan. The copy (or an attached

2. Its average annual gross receipts for the

statement) must show the part of the amount in

3-tax-year period (or portion thereof during

each taxable income bracket apportioned to

which the RIC was in existence) ending before

For a RIC that is a personal holding

that member. See Regulations section

its tax year beginning in 2004 did not exceed

company. A RIC that is a personal holding

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

$7.5 million ($5 million if the RIC had only 1

company or that is not in compliance with

time and manner of making the consent.

prior tax year).

Regulations section 1.852-6 is taxed at a flat

Unequal apportionment plan. Members

rate of 35% on its investment company taxable

of a controlled group may elect an unequal

For more details, see the Instructions for

income.

apportionment plan and divide the taxable

Form 4626.

-10-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2004 Page 10

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