| Instructions for Form 1120-RIC |
2003 Tax Year |
Specific Instructions
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
File the 2003 return for calendar year 2003 and fiscal years that begin in 2003 and end in 2004. For a fiscal year return,
fill in the tax year
space at the top of the form.
Note:
The 2003 Form 1120-RIC may also be used by the fund if:
- The fund has a tax year of less than 12 months that begins and ends in 2004 and
- The 2004 Form 1120-RIC is not available at the time the fund is required to file its return.
The fund must show its 2004 tax year on the 2003 Form 1120-RIC and take into account any tax law changes that are effective
for tax years
beginning after December 31, 2003.
Type or print the RIC's true name (as set forth in the charter or other legal document creating it) and address on the appropriate
lines. Include
the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address
and the fund has a P.O.
box, show the box number instead.
Item B–Date Fund Was Established
If this return is being filed for a series fund (as described in section 851(g)(2)), enter the date the fund was created.
Otherwise, enter the date
the RIC was incorporated or organized.
Item C–Employer
Identification Number (EIN)
Enter the fund's EIN. If the fund does not have an EIN, it must apply for one. An EIN may be applied for:
- Online—Click on the EIN link at
www.irs.gov/businesses/small. The EIN is issued immediately once the application information is
validated.
- By telephone at 1-800-829-4933 from 7:30 a.m. to 5:30 p.m. in the fund's local time zone.
- By mailing or faxing Form SS-4, Application for Employer Identification Number.
If the fund has not received its EIN by the time the return is due, write “Applied for” in the space for the EIN. See Pub. 583 for
details.
Note:
The online application process is not yet available for funds with addresses in foreign countries or Puerto Rico.
Enter the fund's total assets (as determined by the accounting method regularly used in keeping the fund's books and records)
at the end of the tax
year. If there are no assets at the end of the tax year, enter the total assets as of the beginning of the tax year.
Item E–Final Return, Name Change, Address Change, or Amended Return
- If the fund ceases to exist, file Form 1120-RIC and check the “Final return” box.
- If the fund changed its name since it last filed a return, check the box for “Name change.” Generally, a fund also must have amended
its articles of incorporation and filed the amendment with the state in which it was incorporated.
- If the fund has changed its address since it last filed a return, check the box for “Address change.”
- If the fund is amending its return, check the box for “Amended return,” complete the entire return, correct the appropriate lines with
the new information, and refigure the fund's tax liability. Attach a statement that explains the reason for the amendments
and identifies the lines
being changed on the amended return.
Note:
If a change in address occurs after the return is filed, use Form 8822, Change of Address, to notify the IRS of the new address.
Part I—Investment
Company Taxable Income
A fund that is the holder of record of any share of stock on the record date for a dividend payable on that stock must include
the dividend in
gross income by the later of (a) the date the share became an ex-dividend or (b) the date the company acquired the share.
Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds,
etc.
Do not offset interest expense against interest income.
Special rules apply to interest income from certain below-market-rate loans. See section 7872 for more information.
Line 3–Net Foreign
Currency Gain or (Loss)
From Section 988 Transactions
Enter the net foreign currency gain or (loss) from section 988 transactions that is treated as ordinary income or loss under
section 988(a)(1)(A).
Attach a schedule detailing each separate transaction.
Line 4–Payments With
Respect to Securities Loans
Enter the amount received or accrued from a broker as compensation for securities loaned by the fund to the broker for use
in completing market
transactions. The payments must meet the requirements of section 512(a)(5).
Line 5–Excess of Net
Short-Term Capital Gain Over
Net Long-Term Capital Loss
Enter the excess of net short-term capital gain over net long-term capital loss from Schedule D (Form 1120), line 12.
Note:
Every sale or exchange of a capital asset must be reported in detail on Schedule D (Form 1120), even though no gain or loss
is indicated.
Enter any other taxable income not reported on lines 1 through 6, except net capital gain that is reported in Part II. List
the type and amount of
income on an attached schedule. If the fund has only one item of other income, describe it in parentheses on line 7. Examples
of other income to
report on line 7 include:
- Gross rents.
- Recoveries of fees or expenses in settlement or litigation.
- The amount of credit for alcohol used as fuel (determined without regard to the limitation based on tax) entered on Form 6478,
Credit for Alcohol Used as Fuel.
- Refunds of taxes deducted in prior years to the extent they reduced income subject to tax in the year deducted (see section
111). Do not
offset current year taxes against tax refunds.
- The amount of any deduction previously taken under section 179A that is subject to recapture. The fund must recapture the
benefit of any
allowable deduction for qualified clean-fuel vehicle property (or clean-fuel vehicle refueling property) if the property,
later, ceases to qualify.
See Regulations section 1.179A-1 for details.
- Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset
ordinary losses
against ordinary income. Instead, include the losses on line 22, Form 1120-RIC. Show the partnership's name, address, and
EIN on a separate statement
attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.
Limitations on Deductions
Direct and indirect costs (including taxes) allocable to real or tangible personal property constructed or improved by the
taxpayer.
Such costs must be capitalized in accordance with section 263A.
Transactions between related taxpayers.
Generally, an accrual basis taxpayer may only deduct business expenses and interest owed to a related party in the
year the payment is included in
the income of the related party. See sections 163(e)(3), 163(j), and 267 for limitations on deductions for unpaid interest
and expenses.
Golden parachute payments.
A portion of the payments made by a fund to key personnel that exceeds their usual compensation may not be deductible.
This occurs when the fund
has an agreement (golden parachute) with these key employees to pay them these excessive amounts if control of the fund changes.
See section 280G.
Business startup expenses.
Business startup expenses must be capitalized unless an election is made to amortize them over a period of 60 months.
See section 195 and
Regulations section 1.195-1.
Section 265(a)(3) limitation.
If the fund paid exempt-interest dividends during the tax year (including those dividends deemed paid under section
855), no deduction is allowed
for that portion of otherwise deductible expenses, which bears the same ratio as the amount of tax-exempt interest income
bears to total gross income
(including tax-exempt income but excluding capital gain net income).
Net operating loss deduction.
The net operating loss deduction is not allowed.
Passive activity limitations.
Limitations on passive activity losses and credits under section 469 apply to funds that are closely held (as defined
in section 469(j)(1)). Funds
subject to the passive activity limitations must complete Form 8810, Corporate Passive Activity Loss and Credit Limitations, to compute
their allowable passive activity loss and credit.
Reducing certain expenses for which credits are allowable.
For each credit listed below, the fund must reduce the otherwise allowable deductions for expenses used to figure
the credit by the amount of the
current year credit.
- Work opportunity credit.
- Research credit.
- Enhanced oil recovery credit.
- Disabled access credit.
- Empowerment zone and renewal community employment credit.
- Indian employment credit.
- Employer credit for social security and Medicare taxes paid on certain employee tips.
- Orphan drug credit.
- Welfare-to-work credit.
- New York Liberty Zone business employee credit.
If the fund has any of these credits, be sure to figure each current year credit before figuring the deduction for
expenses on which the credit is
based.
Line 9–Compensation of Officers
Enter deductible officers' compensation on line 9. Complete Schedule E if total receipts are $500,000 or more. Total receipts
are figured by
adding: (a) line 8, Part I, (b) net capital gain from line 1, Part II, and (c) line 9a, Form 2438. Do not include
compensation deductible elsewhere on the return, such as elective contributions to a section 401(k) cash or deferred arrangement,
or amounts
contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.
Include only the deductible part of officers' compensation on Schedule E. (See Disallowance of deduction for employee compensation in excess
of $1 million below.) Complete Schedule E, columns (a) through (e), for all officers. The fund determines who is an officer under the laws
of
the state where incorporated.
Disallowance of deduction for employee compensation in excess of $1 million.
Publicly held funds may not deduct compensation to a “ covered employee” to the extent that the compensation exceeds $1 million. Generally, a
covered employee is:
- The chief executive officer of the fund (or an individual acting in that capacity) as of the end of the tax year or
- An employee whose total compensation must be reported to shareholders under the Securities Exchange Act of 1934 because the
employee is
among the four highest compensated officers for that tax year (other than the chief executive officer).
For this purpose, compensation does not include the following:
- Income from certain employee trusts, annuity plans, or pensions.
- Any benefit paid to an employee that is excluded from the employee's income.
The deduction limit does not apply to:
- Commissions based on individual performance;
- Qualified performance-based compensation; and
- Income payable under a written, binding contract in effect on February 17, 1993.
The $1-million limit is reduced by amounts disallowed as excess parachute payments under section 280G.
For details, see section 162(m) and Regulations section 1.162-27.
Line 10–Salaries and Wages
Enter the amount of salaries and wages paid for the tax year, reduced by any:
- Work opportunity credit from Form 5884,
- Empowerment zone and renewal community employment credit from Form 8844,
- Indian employment credit from Form 8845,
- Welfare-to-work credit from Form 8861, and
- New York Liberty Zone business employee credit from Form 8884.
See the instructions for these forms for more information. Do not include salaries and wages deductible elsewhere on the return,
such as elective
contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement
or a SIMPLE IRA plan.
If the fund provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages the amount
allocated for
depreciation and other expenses claimed on lines 14 and 22.
Line 12–Taxes and Licenses
Enter taxes paid or accrued during the tax year, but do not include the following:
- Federal income taxes (except for the tax imposed on net recognized built-in gain allocable to ordinary income).
- Foreign or U.S. possession income taxes if a foreign tax credit is claimed, or if the fund made an election under section
853.
- Excise taxes imposed under section 4982 on undistributed RIC income.
- Taxes not imposed on the fund.
- Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of
property (these
taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the
amount realized on the
disposition).
- Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).
- Taxes deducted elsewhere on the return.
See section 164(d) for apportionment of taxes on real property between seller and purchaser.
Note:
The deduction for interest is limited when the fund is a policyholder or beneficiary with respect to a life insurance, endowment,
or annuity
contract issued after June 8, 1997. For details, see section 264(f). Attach a statement showing the computation of the deduction.
The fund must make an interest allocation if the proceeds of a loan were used for more than one purpose (e.g., to purchase
a portfolio investment
and to acquire an interest in a passive activity). See Temporary Regulations section 1.163-8T for the interest allocation
rules.
Do not deduct the following interest:
- Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income
tax. For
exceptions, see section 265(b).
- For cash basis taxpayers, prepaid interest allocable to years following the current tax year. (For example, a cash basis calendar
year
taxpayer who in 2003 prepaid interest allocable to any period after 2003 can deduct only the amount allocable to 2003).
- Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g).
Special rules apply to:
- Interest on which no tax is imposed (see section 163(j)).
- Foregone interest on certain below-market-rate loans (see section 7872).
- Original issue discount on certain high-yield discount obligations (see section 163(e) to figure the disqualified portion).
Besides depreciation, include on line 14 the part of the cost that the fund elected to expense under section 179 for certain
property placed in
service during tax year 2003 or carried over from 2002. See Form 4562, Depreciation and Amortization, and its instructions.
Note:
Do not deduct fines or penalties paid to a government for violating any law.
Attach a schedule, listing by type and amount, all allowable deductions that are not deductible elsewhere on Form 1120-RIC,
including amortization
of organization expenses. Enter the total of other deductions on this line.
Also include ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)).
Do not offset ordinary
income against ordinary losses. Instead, include the income on line 7. If the amount entered is from more than one partnership,
identify the amount
from each partnership.
Generally, a deduction may not be taken for any amount that is allocable to a class of exempt income. See section 265(b) for
exceptions.
Charitable contributions.
Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations
described in section
170(c) and any unused contributions carried over from prior years.
Funds reporting taxable income on the accrual method may elect to treat as paid during the tax year any contributions
paid by the 15th day of the
3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year.
Attach a declaration to
the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax
year. The declaration must
include the date the resolution was adopted.
Charitable contributions over the 10% limitation may not be deducted for the tax year but may be carried over to the
next 5 tax years.
Substantiation requirements. Generally, no deduction is allowed for any contribution of $250 or more unless the fund gets a written
acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed,
and, either gives a
description and a good faith estimate of the value of any goods or services provided in return for the contribution or states
that no goods or
services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions)
of the fund's
return, or, if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with
the fund's records. These
rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions, described below.
For more information on substantiation and recordkeeping requirements, see the regulations under section 170 and Pub. 526, Charitable
Contributions.
Contributions to organizations conducting lobbying activities. Contributions made to an organization that conducts lobbying activities
are not deductible if:
- The lobbying activities relate to matters of direct financial interest to the donor's trade or business and
- The principal purpose of the contribution was to avoid Federal income tax by obtaining a deduction for activities that would
have been
nondeductible under the lobbying expense rules if conducted directly by the donor.
Contributions of property other than cash. If the fund contributes property other than cash and claims over a $500 deduction for the
property, it must attach a schedule to the return describing the kind of property contributed and the method used to determine
its fair market value
(FMV). Closely held funds must complete Form 8283 and attach it to their returns. All other funds generally must complete
and attach Form 8283 to
their returns for contributions of property (other than money) if the total claimed deduction for all property contributed
was more than $5,000.
If the fund made a “ qualified conservation contribution” under section 170(h), also include the FMV of the underlying property before and
after the donation, as well as the type of legal interest contributed, and describe the conservation purpose benefited by
the donation. If a
contribution carryover is included, show the amount and how it was determined.
Reduced deduction for contributions of certain property. For a charitable contribution of property, the fund must reduce the
contribution by the sum of:
- The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV, and
- For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV.
The reduction for the long-term capital gain applies to:
- Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis
for its
exemption and
- Contributions of any property to or for the use of certain private foundations except for stock for which market quotations
are readily
available (section 170(e)(5)).
Larger deduction. A larger deduction is allowed for certain contributions of:
- Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (see section 170(e)(3)
and
Regulations section 1.170A-4A);
- Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations
(other than by
personal holding companies and service organizations) (see section 170(e)(4)); and
- Computer technology and equipment for educational purposes.
Contributions of computer technology and equipment for educational purposes. A fund may take an increased deduction under section
170(e)(6) for qualified contributions of computer technology or equipment for educational purposes. Computer technology or equipment means
computer software, computer or peripheral equipment, and fiber optic cable related to computer use. A contribution is a qualified
contribution if:
- It is made to an eligible donee (see below);
- Substantially all the donee property's use is:
- Related to the purpose or function of the donee,
- For use within the United States, and
- For educational purposes.
- The contribution is made not later than 3 years after the date the taxpayer acquired or substantially completed the construction
of the
property;
- The original use of the property is by the donor or the donee;
- The property is not transferred by the donee for money, services, or other property, except for shipping, transfer, and installation
costs;
- The property fits productively into the donee's education plan; and
- The property meets standards, if any, that may be prescribed by future regulations, to assure it meets minimum functionality
and suitability
for educational purposes.
Eligible donee.
The term “ eligible donee” means:
- An educational organization that normally maintains a regular faculty and curriculum and has a regularly enrolled body of
pupils in
attendance at the place where its educational activities are regularly conducted,
- A section 501(c)(3) entity organized primarily for purposes of supporting elementary and secondary education, or
- A public library (as described in section 170(e)(6)(B)(i)(lll)).
Exceptions.
The following exceptions apply to the above rules for computer technology and equipment:
- Contributions to private foundations may qualify if the foundation contributes the property to an eligible donee within 30
days after the
contribution and notifies the donor of the contribution. For more details, see section 170(e)(6)(C).
- For contributions of property reacquired by the manufacturer of the property, the 3-year period begins on the date that the
original
construction of the property was substantially completed. Also, the original use of the property may be by someone other than
the donor or the
donee.
Pension, profit-sharing, etc., plans.
Also include on line 22 the deduction for contributions to qualified pension, profit-sharing, or other funded-deferred
compensation plans.
Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified
plan under the Internal
Revenue Code. The filing requirement applies even if the fund does not claim a deduction for the current tax year. There are
penalties for failure to
file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).
Form 5500, Annual Return/Report of Employee Benefit Plan. File this form for a plan that is not a one-participant plan (see below).
Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers
the owner (or the owner and his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire
business.
Travel, meals, and entertainment.
Subject to the limitations and restrictions discussed below, the fund can deduct ordinary and necessary travel, meals,
and entertainment expenses
paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water
travel, convention
expenses, and entertainment tickets. For details, see section 274 and Pub. 463, Travel, Entertainment, Gift, and Car Expenses.
Travel. The fund cannot deduct travel expenses of any individual accompanying a corporate officer or employee, including a spouse
or
dependent of the officer or employee, unless:
- That individual is an employee of the corporation and
- His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual.
Meals and entertainment. Generally, the fund can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses
paid or incurred in its trade or business. In addition (subject to exceptions under section 274(k)(2)):
- Meals must not be lavish or extravagant;
- A bona fide business discussion must occur during, immediately before, or immediately after the meal; and
- An employee of the fund must be present at the meal.
See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the
hours of service limits of the
Department of Transportation.
Membership dues. The fund may deduct amounts paid or incurred for membership dues in civic or public service organizations, professional
organizations, business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However,
no deduction is allowed
if a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests.
In addition, the fund
may not deduct membership dues in any club organized for business, pleasure, recreation, or other social purpose.
Entertainment facilities. The fund cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for
an activity usually considered entertainment, amusement, or recreation.
Note:
The fund may be able to deduct otherwise nondeductible meals, travel, and entertainment expenses if the amounts are treated
as compensation and
reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor.
Deduction for clean-fuel vehicles and certain refueling property.
Section 179A allows a deduction for part of the cost of qualified clean-fuel vehicle property and qualified clean-fuel
vehicle refueling property
placed in service during the tax year. For more information, see Pub. 535, Business Expenses.
Lobbying expenses.
Generally, lobbying expenses are not deductible. These expenses include:
- Amounts paid or incurred in connection with influencing Federal or state legislation (but not local legislation) or
- Amounts paid or incurred in connection with any communication with certain Federal executive branch officials in an attempt
to influence the
official actions or positions of the officials. See Regulations section 1.162-29 for the definition of “influencing legislation.”
Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. See section 162(e)(3).
If certain in-house lobbying
expenditures do not exceed $2,000, they are deductible. For information on contributions to charitable organizations that
conduct lobbying activities,
see the instructions above. For more information on lobbying expenses, see section 162(e).
Line 24–Taxable Income Before Deduction for Dividends Paid
At-risk rules.
Generally, special at-risk rules under section 465 apply to closely held funds engaged in any activity as a trade
or business or for the production
of income. These funds may have to adjust the amount on line 24.
The at-risk rules do not apply to:
- Holding real property placed in service by the fund before 1987;
- Equipment leasing under sections 465(c)(4), (5), and (6); and
- Any qualifying business of a qualified corporation under section 465(c)(7).
However, the at-risk rules do apply to the holding of mineral property. For more information, see section 465 and
Form 6198, At-Risk
Limitations.
Tax and Payments
Line 28b–Estimated Tax Payments
Enter any estimated tax payments the fund made for the tax year.
Line 28f–Credit for Tax Paid on Undistributed Capital Gains
Enter the credit (from Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains) for the fund's share of the tax paid
by another RIC or a REIT on undistributed long-term capital gains included in the fund's income. Attach Form 2439 to Form
1120-RIC.
Line 28g–Credit for
Federal Tax on Fuels
Complete and attach Form 4136, Credit for Federal Tax Paid on Fuels, if the fund qualifies to take this credit.
Add the amounts on lines 28d through 28g and enter the total on line 28h.
Backup withholding.
If the fund had income tax withheld from any payments it received, because, for example, it failed to give the payer
its correct EIN, include the
amount withheld in the total for line 28h. This type of withholding is called “ Backup Withholding.” Show the amount withheld in the blank space
in the right-hand column between lines 27 and 28h, and write “ Backup Withholding.”
Line 29–Estimated Tax Penalty
A fund that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment.
Generally, a
fund is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of:
- 100% of its alternative minimum tax minus the credit for Federal tax paid on fuels for 2003 as shown on the return or
- 100% of its prior year's tax.
See section 6655 for details and exceptions, including special rules for large corporations.
Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the fund owes a penalty and to figure the amount of the penalty.
Generally, the fund does not have to file this form because the IRS can figure the amount of any penalty and bill the fund
for it. However, even if
the fund does not owe the penalty, the fund must complete and attach Form 2220 if:
- The annualized income or adjusted seasonal installment method is used or
- The fund is a large corporation computing its first required installment based on the prior year's tax. See the Instructions
for Form 2220
for the definition of a large corporation.
If Form 2220 is attached, check the box on line 29, page 1, Form 1120-RIC, and enter the amount of any penalty on this line.
Deduction for Dividends Paid
Column (a) is used to determine the deduction for dividends paid resulting from ordinary dividends.
Column (b)
is used to determine the deduction for dividends paid resulting from capital gain dividends.
Do not include any amount reported for the tax year on Form 2438, line 9b. Section 561 (taking into account sections 852(b)(7),
852(c)(3)(B), and
855(a)) determines the deduction for dividends paid. Do not take into account exempt-interest dividends defined in section
852(b)(5). See Regulations
section 1.852-11.
Dividends, both ordinary and capital gain, declared and payable to shareholders of record in October, November, or December
are treated as paid by
the fund and received by each shareholder on December 31 of that calendar year provided that they are actually paid in January
of the following
calendar year. Enter on line 3 all such dividends not already entered on line 1 or 2.
Enter the foreign tax paid deduction allowed as an addition to the dividends paid deduction under section 853(b)(1)(B). See
the instructions for
Item 10, Schedule K, on page 12, for information on the election available under section 853(a).
Income From
Tax-Exempt Obligations
If, at the close of each quarter of the tax year, at least 50% of the value of the fund's assets consisted of tax-exempt obligations
under section
103(a), the fund qualifies under section 852(b)(5) to pay exempt-interest dividends for the tax year.
Check the “Yes” box on line 1 of Schedule B and complete lines 2 through 5. See section 852(b)(5) for the definition of exempt-interest
dividends and other details.
Members of a controlled group.
A member of a controlled group, as defined in section 1563, must check the box on line 1 and complete lines 2a and
2b of Schedule J.
Line 2a.
Members of a controlled group are entitled to one $50,000, one $25,000, and one $9,925,000 taxable income bracket
amount (in that order) on line
2a.
When a controlled group adopts or later amends an apportionment plan, each member must attach to its tax return a
copy of its consent to this plan.
The copy (or an attached statement) must show the part of the amount in each taxable income bracket apportioned to that member.
See Regulations
section 1.1561-3(b) for other requirements and for the time and manner of making the consent.
Unequal apportionment plan.
Members of a controlled group may elect an unequal apportionment plan and divide the taxable income brackets as they
want. There is no need for
consistency among taxable income brackets. Any member may be entitled to all, some, or none of the taxable income brackets.
However, the total amount
for all members cannot be more than the total amount in each taxable income bracket.
Equal apportionment plan.
If no apportionment plan is adopted, members of a controlled group must divide the amount in each taxable income bracket
equally among themselves.
For example, Controlled Group AB consists of Corporation A and Corporation B. They do not elect an apportionment plan. Therefore,
each fund is
entitled to:
- $25,000 (one-half of $50,000) on line 2a(1);
- $12,500 (one-half of $25,000) on line 2a(2); and
- $4,962,500 (one-half of $9,925,000) on line 2a(3).
Line 2b.
Members of a controlled group are treated as one group to figure the applicability of the additional 5% tax and the
additional 3% tax. If an
additional tax applies, each member will pay that tax based on the part of the amount used in each taxable income bracket
to reduce that member's tax.
See section 1561(a). If an additional tax applies, attach a schedule showing the taxable income of the entire group and how
the fund figured its share
of the additional tax.
Line 2b(1).
Enter the fund's share of the additional 5% tax on line 2b(1).
Line 2b(2).
Enter the fund's share of the additional 3% tax on line 2b(2).
Note:
Members of a controlled group must attach to Form 1120-RIC a statement showing the computation of the tax entered on line
3a. You may use the
Tax Computation Worksheet for Members of a Controlled Group on page 10 for this purpose.
The fund computes its investment company taxable income tax as follows:
- A fund that is not a personal holding company and is in compliance with Regulations section 1.852-6 regarding disclosure of
the fund's
actual stock ownership (members of a controlled group should see the instructions above for lines 1 and 2) computes its tax
using the Tax Rate
Schedule on page 10.
Tax Rate Schedule
If the investment company taxable income
(line 26, page 1) is: |
| Over— |
But not over— |
Tax is: |
Of the amount over— |
| $0 |
$50,000 |
15% |
$0 |
| 50,000 |
75,000 |
$ 7,500 + 25% |
50,000 |
| 75,000 |
100,000 |
13,750 + 34% |
75,000 |
| 100,000 |
335,000 |
22,250 + 39% |
100,000 |
| 335,000 |
10,000,000 |
113,900 + 34% |
335,000 |
| 10,000,000 |
15,000,000 |
3,400,000 + 35% |
10,000,000 |
| 15,000,000 |
18,333,333 |
5,150,000 + 38% |
15,000,000 |
| 18,333,333 |
- - - - - |
35% |
0 |
- A fund that is a personal holding company or that is not in compliance with Regulations section 1.852-6 is taxed at a flat
rate of 35% on
its investment company taxable income.
Tax Computation Worksheet for Members of a Controlled Group
<emphasis>(keep for your records)</emphasis>
| Note: Each member of a controlled group must compute the tax on its investment
company taxable income using this worksheet (except funds that are personal holding companies or that are not in compliance
with Regulations section
1.852-6, see item 2 of Line 3a above.) |
| 1. |
Enter investment company taxable income (line 26, page 1) |
|
| 2. |
Enter line 1 or the fund's share of the $50,000 taxable income bracket, whichever is less |
|
| 3. |
Subtract line 2 from line 1 |
|
| 4. |
Enter line 3 or the fund's share of the $25,000 taxable income bracket, whichever is less |
|
| 5. |
Subtract line 4 from line 3 |
|
| 6. |
Enter line 5 or the fund's share of the $9,925,000 taxable income bracket, whichever is less |
|
| 7. |
Subtract line 6 from line 5 |
|
| 8. |
Multiply line 2 by 15% |
|
| 9. |
Multiply line 4 by 25% |
|
| 10. |
Multiply line 6 by 34% |
|
| 11. |
Multiply line 7 by 35% |
|
| 12. |
If the taxable income of the controlled group exceeds $100,000, enter this member's share of the smaller
of: 5% of the taxable income in excess of $100,000, or $11,750. (see the instructions for line 2b above)
|
|
| 13. |
If the taxable income of the controlled group exceeds $15 million, enter this member's share of the smaller
of 3% of the taxable income in excess of $15 million, or $100,000. (see the instructions for line 2b above)
|
|
| 14. |
Total. Add lines 8 through 13. Enter here and on line 3a, Schedule J
|
|
Line 3c–Alternative Minimum Tax (AMT)
Unless the fund is treated as a small corporation exempt from the AMT, it may owe the AMT if it has any of the adjustments
and tax preference items
listed on Form 4626, Alternative Minimum Tax—Corporations. The fund must file Form 4626 if its investment company taxable income (or
loss) and retained capital gains not designated under section 852(b)(3)(D) plus adjustments and tax preference items is more
than the smaller of
$40,000 or the fund's allowable exemption amount (from Form 4626). See Form 4626 for details.
Exemption for small corporations.
A fund is treated as a small corporation exempt from the AMT for its tax year beginning in 2003 if that year is the
fund's first tax year in
existence (regardless of its gross receipts) or:
- It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997 and
- Its average annual gross receipts for the 3-tax-year period (or portion thereof during which the fund was in existence) ending
before its
tax year beginning in 2003 did not exceed $7.5 million ($5 million if the fund had only 1 prior tax year).
Deferred tax under section 1291.
If the fund was a shareholder in a passive foreign investment company (PFIC), and the fund received an excess distribution
or disposed of its
investment in the PFIC during the year, it must include the increase in taxes due under section 1291(c)(2) in the total for
line 3d, Schedule J. On
the dotted line to the left of line 3d, Schedule J, write “ Section 1291” and the amount.
Do not include on line 3d any interest due under section 1291(c)(3). Instead, show the amount of interest owed in
the bottom margin of page 1, Form
1120-RIC, and write “ Section 1291 interest.” For details, see Form 8621, Return by a Shareholder of a Passive Foreign Investment
Company or Qualified Electing Fund.
Additional tax under section 197(f).
A fund that elects to pay tax on the gain from the sale of an intangible under the related person exception to the
anti-churning rules should
include any additional tax due under section 197(f)(9)(B) in the total for line 3d. On the dotted line to the left of line
3d, write “ Section
197” and the amount. For more information, see Pub. 535.
Line 4a–Foreign Tax Credit
To find out when a fund can take this credit for payment of income tax to a foreign country or U.S. possession, see Form 1118, Foreign
Tax Credit—Corporations. The fund may not claim this credit if an election under section 853 was made for the tax year. See
Item 10, Schedule K,
on page 12.
If the fund can take either of the following credits, check the appropriate box(es) and include the amount of the credits
in the total for line 4b.
Nonconventional source fuel credit.
A credit is allowed for the sale of qualified fuels produced from a nonconventional source. Section 29 contains a
definition of qualified fuels,
provisions for figuring the credit, and other special rules. Attach a separate schedule to the return showing the computation
of the credit.
Qualified electric vehicle credit.
Use Form 8834, Qualified Electric Vehicle Credit, if the corporation can claim a credit for the purchase of a new qualified electric
vehicle. Vehicles that qualify for this credit are not eligible for the deduction for clean-fuel vehicles under section 179A.
Line 4c–General Business Credit
Enter on line 4c the fund's total general business credit.
If the fund is filing Form 8844, Empowerment Zone and Renewal Community Employment Credit, or Form 8884, New York Liberty
Zone Business Employee Credit, check the “Form(s)” box, write the form number in the space provided, and include the allowable credit on line 4c.
If the fund is required to file Form 3800, General Business Credit, check the “Form 3800” box and include the allowable credit on
line 4c. If the fund is not required to file Form 3800, check the “Form(s)” box, write the form number in the space provided, and include on line
4c the allowable credit from the applicable form listed below.
- Investment Credit (Form 3468).
- Work Opportunity Credit (Form 5884).
- Credit for Alcohol Used as Fuel (Form 6478).
- Credit for Increasing Research Activities (Form 6765).
- Low-Income Housing Credit (Form 8586).
- Orphan Drug Credit (Form 8820).
- Disabled Access Credit (Form 8826).
- Enhanced Oil Recovery Credit (Form 8830).
- Renewable Electricity Production Credit (Form 8835).
- Indian Employment Credit (Form 8845).
- Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips (Form 8846).
- Credit for Contributions to Selected Community Development Corporations (Form 8847).
- Welfare-to-Work Credit (Form 8861).
- New Markets Credit (Form 8874).
- Credit for Small Employer Pension Plan Startup Costs (Form 8881).
- Credit for Employer-Provided Child Care Facilities and Services (Form 8882).
Line 4d–Credit for Prior
Year Minimum Tax
To figure the minimum tax credit and any carryforward of that credit, use Form 8827, Credit for Prior Year Minimum
Tax—Corporations. Also see Form 8827 if any of the fund's 2002 nonconventional source fuel credit or qualified electric vehicle
credit was
disallowed solely because of the tentative minimum tax limitation. See section 53(d).
Line 6–Personal
Holding Company Tax
A fund is taxed as a personal holding company under section 542 if:
- At least 60% of its adjusted ordinary gross income for the tax year is personal holding company income and
- At any time during the last half of the tax year more than 50% in value of its outstanding stock is owned, directly or indirectly,
by five
or fewer individuals.
See Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax, for definitions and details on how to figure the tax.
Include any of the following taxes and interest in the total on line 7. Check the appropriate box(es) for the form, if any,
used to compute the
total.
Recapture of Investment Credit
If the fund disposed of investment credit property or changed its use before the end of its useful life or recovery period,
it may owe a tax. See
Form 4255, Recapture of Investment Credit.
Recapture of Low-Income Housing Credit
If the fund disposed of property (or there was a reduction in the qualified basis of the property) for which it took the low-income
housing credit,
it may owe a tax. See Form 8611, Recapture of Low-Income Housing Credit.
Additional taxes and interest amounts may be included in the total entered on line 7. Check the box for “Other” if the fund includes any of
the taxes and interest discussed below. See How to report, below, for details on reporting these amounts on an attached schedule.
Recapture of qualified electric vehicle (QEV) credit.
The fund must recapture part of the QEV credit it claimed in a prior year, if within 3 years of the date the vehicle
was placed in service, it
ceases to qualify for the credit. See Regulations section 1.30-1 for details on how to figure the recapture.
Recapture of Indian employment credit.
Generally, if an employer terminates the employment of a qualified employee less than 1 year after the date of initial
employment, any Indian
employment credit allowed for a prior tax year because of wages paid or incurred to that employee must be recaptured. For
details, see Form 8845 and
section 45A.
Recapture of New Markets Credit
(see Form 8874).
Interest due on:
- Deferred tax attributable to (a) installment sales of certain timeshares and residential lots (section 453(l)(3)) and
(b) certain nondealer installment obligations (section 453A(c)).
- Deferred gain (section 1260(b)).
Built-in gains tax.
If, on or after January 2, 2002, property of a C corporation becomes property of a RIC by either (a) the qualification of the
C corporation as a RIC or (b) the transfer of such property to a RIC, then the RIC will be subject to the built-in gain tax under section
1374 unless the C corporation elects deemed sale treatment on the transferred property. If the C corporation does not make this election,
the RIC must pay tax on the net recognized built-in gain during the 10-year period beginning on its first day as a RIC or
the day it acquired the
property. Recognized built-in gains and losses on which a fund pays tax generally retain their character (e.g., ordinary
income or capital gain) and
are treated the same as other gains or losses of the fund. The fund's tax on net recognized built-in gain is treated as a
loss sustained by the fund
after October 31 of the same tax year (see the instructions for line i of the Built-in Gains Tax Worksheet on this page). See Regulations
section 1.337(d)-7 for details.
Different rules apply to elections to be a RIC and to transfers of property in a carryover basis transaction that
occurred prior to January 2,
2002. For RIC elections and property transfers before this date, the C corporation is subject to deemed sale treatment on the transferred
property unless the fund elects section 1374 treatment. See Regulations section 1.337(d)-6 for information on how to make
the election and figure the
tax for RIC elections and property transfers before this date. The fund may also rely on Regulations section 1.337(d)-5 for
RIC elections and property
transfers that occurred before January 2, 2002.
Worksheet instructions. Complete the worksheet on this page to figure the built-in gains tax under Regulations section 1.337(d)-7 or
1.337(d)-6.
Line a.
Enter the amount that would be the taxable income of the fund for the tax year if only recognized built-in gain, recognized
built-in loss, and
recognized built-in gain carryover were taken into account.
Line b.
Add the amounts shown on Form 1120-RIC, page 1, line 24; Form 1120-RIC, Part II, line 1; and Form 2438, line 11. For
this purpose, refigure line 24
on page 1 of Form 1120-RIC without regard to any election under section 852(b)(2)(F). Enter the result on line b of the worksheet
on this page.
Line c.
The fund's net unrealized built-in gain is the amount, if any, by which the fair market value of the assets of the
fund at the beginning of its
first RIC year (or as of the date the assets were acquired, for any asset with a basis determined by reference to its basis
(or the basis of any other
property) in the hands of a C corporation) exceeds the aggregate adjusted basis of such assets at that time.
Enter on line c the fund net unrealized built-in gain reduced by the net recognized built-in gain for prior years.
See sections 1374(c)(2) and
(d)(1).
Line d.
If the amount on line b exceeds the amount on line a, the excess is treated as a recognized built-in gain in the succeeding
tax year.
Line e.
Enter the section 1374(b)(2) deduction. Generally, this is any net operating loss carryforward or capital loss carryforward
(to the extent of net
capital gain included in recognized built-in gain for the tax year) arising in tax years for which the fund was a C corporation.
A capital loss
carryforward must be used to reduce recognized built-in gain for the tax year to the greatest extent possible before it can
be used to reduce the
investment company taxable income.
Line h.
Credit carryforwards arising in tax years for which the fund was a C corporation must be used to reduce the tax on
net built-in gain for the tax
year to the greatest extent possible before the credit carryforwards can be used to reduce the tax on the investment company
taxable income.
Line i.
The fund's tax on the net recognized built-in gain is treated as a loss sustained by the RIC after October 31 of the
same tax year. Deduct the tax
attributable to:
- Ordinary gain as a deduction for taxes on Form 1120-RIC, line 12.
- Short-term capital gain as a short-term capital loss on Schedule D (Form 1120), line 1.
- Long-term capital gain as a long-term capital loss on Schedule D (Form 1120), line 6.
How to report.
If the fund checked the “ Other” box, attach a schedule showing the computation of each item included in the total for line 7, Schedule J;
identify the applicable Code section and the type of tax or interest.
Include any deferred tax on the termination of a section 1294 election applicable to shareholders in a qualified electing fund in
the
amount entered on line 8. See Form 8621, Part V, and How to report, below.
Subtract. Amounts to subtract from the total for line 8 are the deferred taxes on the fund's share of the undistributed earnings of
a
qualified electing fund (see Form 8621, Part II).
How to report.
Attach a schedule showing the computation of each item included in, or subtracted from, the total for line 8. On the
dotted line next to line 8,
enter the amount of tax or interest, identify it as tax or interest, and specify the Code section that applies.
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 7 of Schedule J
(see instructions)
|
i. |
|
The following instructions apply to questions 1 through 11 on page 3, Form 1120-RIC. Complete all the questions that apply
to the fund.
Check the “Yes” box for question 3 if the fund is a subsidiary in a parent-subsidiary controlled group (defined below). This applies even
if
the fund is a subsidiary member of one group and the parent corporation of another.
Note:
If the fund is an “excluded member” of a controlled group (see section 1563(b)(2)), it is still considered a member of a controlled group for
this purpose.
Parent-subsidiary controlled group.
The term “ parent-subsidiary controlled group” means one or more chains of corporations connected through stock ownership (section 1563(a)(1)).
Both of the following requirements must be met:
- At least 80% of the total combined voting power of all classes of voting stock entitled to vote or at least 80% of the total
value of all
classes of stock of each corporation in the group (except the parent) must be owned by one or more of the other corporations
in the group
and
- The common parent must own at least 80% of the total combined voting power of all classes of stock entitled to vote or at
least 80% of the
total value of all classes of stock of one or more of the other corporations in the group. Stock owned directly by other members
of the group is not
counted when computing the voting power or value.
See section 1563(d)(1) for the definition of “ stock” for purposes of determining stock ownership above.
Check the “Yes” box if one foreign person owned at least 25% of (a) the total voting power of all classes of stock of the fund
entitled to vote or (b) the total value of all classes of stock of the fund.
The constructive ownership rules of section 318 apply in determining if a fund is foreign owned. See section 6038A(c)(5) and
the related
regulations.
Enter on line 5b(1) the percentage owned by the foreign person specified in question 5. For line 5b(2), write the name of
the owner's country.
Note:
If there is more than one 25%-or-more foreign owner, complete lines 5b(1) and 5b(2) for the foreign person with the highest
percentage of
ownership.
Foreign person.
The term “ foreign person” means:
- A foreign citizen or nonresident alien.
- An individual who is a citizen of a U.S. possession (but who is not a U.S. citizen or resident).
- A foreign partnership.
- A foreign corporation.
- Any foreign estate or trust within the meaning of section 7701(a)(31).
- A foreign government (or one of its agencies or instrumentalities) to the extent that it is engaged in the conduct of a commercial
activity
as described in section 892.
Owner's country.
For individuals, the term “ owner's country” means the country of residence. For all others, it is the country where incorporated, organized,
created, or administered.
Requirement to file Form 5472.
If the fund checked “ Yes,” it may have to file Form 5472. Generally, a 25% foreign-owned corporation that had a reportable transaction with a
foreign or domestic related party during the tax year must file Form 5472.
See Form 5472 for filing instructions and penalties for failure to file.
Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in another
mutual fund or other
regulated investment company.
Election under section 853(a).
A fund may make an irrevocable election under section 853(a) to allow its shareholders to apply their shares of the
foreign taxes paid by the fund
either as a credit or a deduction. If the fund makes this election, the amount of foreign taxes it paid during the tax year
may not be taken as a
credit or a deduction on Form 1120-RIC, but may be claimed on Form 1120-RIC, Schedule A, line 5, as an addition to the dividends-paid
deduction.
Eligibility.
To qualify to make the election, the fund must meet the following requirements.
- More than 50% of the value of the fund's total assets at the end of the tax year must consist of stock or securities in foreign
corporations.
- The fund must meet the holding period requirements of section 901(k) with respect to its common and preferred stock. If the
fund fails to
meet these holding period requirements, the election that allows a fund to pass through to its shareholders the foreign tax
credits for foreign taxes
paid by the fund is disallowed. Although the foreign taxes paid may not be taken as a credit by either the fund or the shareholder,
they are still
deductible at the fund level.
To make a valid election, in addition to timely filing Form 1120-RIC and checking the box for line 10, the fund must
file:
- Form 1099-DIV and Form 1096, including the statement required by Regulations section 1.853-4; and
- Form 1118, modified to become a statement supporting the fund's election.
Notification.
If the fund makes the election, it must furnish to its shareholders a written notice designating the shareholder's
share of foreign taxes paid to
each country or possession and the share of the dividend that represents income derived from sources within each country or
possession. The notice
must be mailed to the shareholders no later than 60 days after the end of the fund's tax year.
For further information, see Regulations section 1.853-4.
The balance sheet should agree with the fund's books and records. Include certificates of deposit as cash on Schedule L, line
1.
Line 4–Tax-Exempt Securities
Include on this line:
- State and local government obligations, the interest on which is excludible from gross income under section 103(a) and
- Stock in another mutual fund or other RIC that distributed exempt-interest dividends during the tax year of the fund.
Line 24–Adjustments to Shareholders' Equity
Some examples of adjustments to report on this line include:
- Unrealized gains and losses on securities held “available for sale.”
- Foreign currency translation adjustments.
- The excess of additional pension liability over unrecognized prior service cost.
- Guarantees of employee stock (ESOP) debt.
- Compensation related to employee stock award plans.
If the total adjustment to be entered on line 24 is a negative amount, enter the amount in parentheses.
Reconciliation of Income (Loss) per Books With Income per Return
Line 5d–Travel and Entertainment
Include on line 5d any of the following:
- Meals and entertainment not deductible under section 274(n).
- Expenses for the use of an entertainment facility.
- The part of business gifts over $25.
- Expenses of an individual over $2,000, which are allocable to conventions on cruise ships.
- Employee achievement awards over $400.
- The cost of entertainment tickets over face value (also subject to the 50% limit under section 274(n)).
- The cost of skyboxes over the face value of nonluxury box seat tickets.
- The part of luxury water travel not deductible under section 274(m).
- Expenses for travel as a form of education.
- Other nondeductible travel and entertainment expenses.
For more information, see Pub. 542, Corporations.
Line 7–Tax-Exempt Interest
Include as interest on line 7 any exempt-interest dividends received by the fund as a shareholder in a mutual fund or other
RIC.
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