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[111th Congress Public Law 325]
[From the U.S. Government Printing Office]

[[Page 124 STAT. 3537]]

Public Law 111-325
111th Congress

                                 An Act

 
   To amend the Internal Revenue Code of 1986 to modify certain rules 
      applicable to regulated investment companies, and for other 
            purposes. <<NOTE: Dec. 22, 2010 -  [H.R. 4337]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, <<NOTE: Regulated 
Investment Company Modernization Act of 2010. 26 USC 1 note.>> 
SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Regulated 
Investment Company Modernization Act of 2010''.
    (b) Reference.--Except as otherwise expressly provided, whenever in 
this Act an amendment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.

   TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

Sec. 101. Capital loss carryovers of regulated investment companies.

  TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED 
                          INVESTMENT COMPANIES

Sec. 201. Savings provisions for failures of regulated investment 
           companies to satisfy gross income and asset tests.

    TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER 
                              DISTRIBUTIONS

Sec. 301. Modification of dividend designation requirements and 
           allocation rules for regulated investment companies.
Sec. 302. Earnings and profits of regulated investment companies.
Sec. 303. Pass-thru of exempt-interest dividends and foreign tax credits 
           in fund of funds structure.
Sec. 304. Modification of rules for spillover dividends of regulated 
           investment companies.
Sec. 305. Return of capital distributions of regulated investment 
           companies.
Sec. 306. Distributions in redemption of stock of a regulated investment 
           company.
Sec. 307. Repeal of preferential dividend rule for publicly offered 
           regulated investment companies.
Sec. 308. Elective deferral of certain late-year losses of regulated 
           investment companies.
Sec. 309. Exception to holding period requirement for certain regularly 
           declared exempt-interest dividends.

 TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED 
                          INVESTMENT COMPANIES

Sec. 401. Excise tax exemption for certain regulated investment 
           companies owned by tax exempt entities.

[[Page 124 STAT. 3538]]

Sec. 402. Deferral of certain gains and losses of regulated investment 
           companies for excise tax purposes.
Sec. 403. Distributed amount for excise tax purposes determined on basis 
           of taxes paid by regulated investment company.
Sec. 404. Increase in required distribution of capital gain net income.

                        TITLE V--OTHER PROVISIONS

Sec. 501. Repeal of assessable penalty with respect to liability for tax 
           of regulated investment companies.
Sec. 502. Modification of sales load basis deferral rule for regulated 
           investment companies.

   TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

SEC. 101. CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT 
                        COMPANIES.

    (a) In General.--Subsection (a) of section 1212 <<NOTE: 26 USC 
1212.>>  is amended by redesignating paragraph (3) as paragraph (4) and 
by inserting after paragraph (2) the following new paragraph:
            ``(3) Regulated investment companies.--
                    ``(A) In general.--If a regulated investment company 
                has a net capital loss for any taxable year--
                          ``(i) paragraph (1) shall not apply to such 
                      loss,
                          ``(ii) the excess of the net short-term 
                      capital loss over the net long-term capital gain 
                      for such year shall be a short-term capital loss 
                      arising on the first day of the next taxable year, 
                      and
                          ``(iii) the excess of the net long-term 
                      capital loss over the net short-term capital gain 
                      for such year shall be a long-term capital loss 
                      arising on the first day of the next taxable year.
                    ``(B) Coordination with general rule.--If 
                a <<NOTE: Applicability.>>  net capital loss to which 
                paragraph (1) applies is carried over to a taxable year 
                of a regulated investment company--
                          ``(i) Losses to which this paragraph 
                      applies.--Clauses (ii) and (iii) of subparagraph 
                      (A) shall be applied without regard to any amount 
                      treated as a short-term capital loss under 
                      paragraph (1).
                          ``(ii) Losses to which general rule applies.--
                      Paragraph (1) shall be applied by substituting 
                      `net capital loss for the loss year or any taxable 
                      year thereafter (other than a net capital loss to 
                      which paragraph (3)(A) applies)' for `net capital 
                      loss for the loss year or any taxable year 
                      thereafter'.''.

    (b) Conforming Amendments.--
            (1) Subparagraph (C) of section 1212(a)(1) is amended to 
        read as follows:
                    ``(C) a capital loss carryover to each of the 10 
                taxable years succeeding the loss year, but only to the 
                extent such loss is attributable to a foreign 
                expropriation loss,''.
            (2) Paragraph (10) of section 1222 is amended by striking 
        ``section 1212'' and inserting ``section 1212(a)(1)''.

    (c) <<NOTE: 26 USC 1212 note.>>  Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to net capital

[[Page 124 STAT. 3539]]

        losses for taxable years beginning after the date of the 
        enactment of this Act.
            (2) Coordination rules.--Subparagraph 
        (B) <<NOTE: Applicability.>>  of section 1212(a)(3) of the 
        Internal Revenue Code of 1986, as added by this section, shall 
        apply to taxable years beginning after the date of the enactment 
        of this Act.

  TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED 
                          INVESTMENT COMPANIES

SEC. 201. SAVINGS PROVISIONS FOR FAILURES OF REGULATED INVESTMENT 
                        COMPANIES TO SATISFY GROSS INCOME AND 
                        ASSET TESTS.

    (a) Asset Test.--Subsection (d) of section 851 <<NOTE: 26 USC 
851.>>  is amended--
            (1) by striking ``A corporation which meets'' and inserting 
        the following:
            ``(1) In general.--A corporation which meets'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Special rules regarding failure to satisfy 
        requirements.--If paragraph (1) does not preserve a 
        corporation's status as a regulated investment company for any 
        particular quarter--
                    ``(A) In general.--A corporation that fails to meet 
                the requirements of subsection (b)(3) (other than a 
                failure described in subparagraph (B)(i)) for such 
                quarter shall nevertheless be considered to have 
                satisfied the requirements of such subsection for such 
                quarter if--
                          ``(i) following the corporation's 
                      identification of the failure to satisfy the 
                      requirements of such subsection for such quarter, 
                      a description of each asset that causes the 
                      corporation to fail to satisfy the requirements of 
                      such subsection at the close of such quarter is 
                      set forth in a schedule for such quarter filed in 
                      the manner provided by the Secretary,
                          ``(ii) the failure to meet the requirements of 
                      such subsection for such quarter is due to 
                      reasonable cause and not due to willful neglect, 
                      and
                          ``(iii)(I) <<NOTE: Deadline.>>  the 
                      corporation disposes of the assets set forth on 
                      the schedule specified in clause (i) within 6 
                      months after the last day of the quarter in which 
                      the corporation's identification of the failure to 
                      satisfy the requirements of such subsection 
                      occurred or such other time period prescribed by 
                      the Secretary and in the manner prescribed by the 
                      Secretary, or
                          ``(II) the requirements of such subsection are 
                      otherwise met within the time period specified in 
                      subclause (I).
                    ``(B) Rule for certain de minimis failures.--A 
                corporation that fails to meet the requirements of 
                subsection (b)(3) for such quarter shall nevertheless be 
                considered to have satisfied the requirements of such 
                subsection for such quarter if--

[[Page 124 STAT. 3540]]

                          ``(i) such failure is due to the ownership of 
                      assets the total value of which does not exceed 
                      the lesser of--
                                    ``(I) 1 percent of the total value 
                                of the corporation's assets at the end 
                                of the quarter for which such 
                                measurement is done, or
                                    ``(II) $10,000,000, and
                          ``(ii)(I) <<NOTE: Deadline.>>  the 
                      corporation, following the identification of such 
                      failure, disposes of assets in order to meet the 
                      requirements of such subsection within 6 months 
                      after the last day of the quarter in which the 
                      corporation's identification of the failure to 
                      satisfy the requirements of such subsection 
                      occurred or such other time period prescribed by 
                      the Secretary and in the manner prescribed by the 
                      Secretary, or
                          ``(II) the requirements of such subsection are 
                      otherwise met within the time period specified in 
                      subclause (I).
                    ``(C) Tax.--
                          ``(i) Tax imposed.--If subparagraph (A) 
                      applies to a corporation for any quarter, there is 
                      hereby imposed on such corporation a tax in an 
                      amount equal to the greater of--
                                    ``(I) $50,000, or
                                    ``(II) the amount determined 
                                (pursuant to regulations promulgated by 
                                the Secretary) by multiplying the net 
                                income generated by the assets described 
                                in the schedule specified in 
                                subparagraph (A)(i) for the period 
                                specified in clause (ii) by the highest 
                                rate of tax specified in section 11.
                          ``(ii) Period.--For purposes of clause 
                      (i)(II), the period described in this clause is 
                      the period beginning on the first date that the 
                      failure to satisfy the requirements of subsection 
                      (b)(3) occurs as a result of the ownership of such 
                      assets and ending on the earlier of the date on 
                      which the corporation disposes of such assets or 
                      the end of the first quarter when there is no 
                      longer a failure to satisfy such subsection.
                          ``(iii) Administrative provisions.--For 
                      purposes of subtitle F, a tax imposed by this 
                      subparagraph shall be treated as an excise tax 
                      with respect to which the deficiency procedures of 
                      such subtitle apply.''.

    (b) Gross Income Test.--Section 851 <<NOTE: 26 USC 851.>>  is 
amended by adding at the end the following new subsection:

    ``(i) Failure To Satisfy Gross Income Test.--
            ``(1) Disclosure requirement.--A corporation that fails to 
        meet the requirement of paragraph (2) of subsection (b) for any 
        taxable year shall nevertheless be considered to have satisfied 
        the requirement of such paragraph for such taxable year if--
                    ``(A) following the corporation's identification of 
                the failure to meet such requirement for such taxable 
                year, a description of each item of its gross income 
                described in such paragraph is set forth in a schedule 
                for such taxable year filed in the manner provided by 
                the Secretary, and

[[Page 124 STAT. 3541]]

                    ``(B) the failure to meet such requirement is due to 
                reasonable cause and not due to willful neglect.
            ``(2) Imposition of tax on failures.--If paragraph (1) 
        applies to a regulated investment company for any taxable year, 
        there is hereby imposed on such company a tax in an amount equal 
        to the excess of--
                    ``(A) the gross income of such company which is not 
                derived from sources referred to in subsection (b)(2), 
                over
                    ``(B) \1/9\ of the gross income of such company 
                which is derived from such sources.''.

    (c) Deduction of Taxes Paid From Investment Company Taxable 
Income.--Paragraph (2) of section 852(b) <<NOTE: 26 USC 852.>>  is 
amended by adding at the end the following new subparagraph:
                    ``(G) There shall be deducted an amount equal to the 
                tax imposed by subsections (d)(2) and (i) of section 851 
                for the taxable year.''.

    (d) <<NOTE: 26 USC 851 note.>>  Effective Date.--The amendments made 
by this section shall apply to taxable years with respect to which the 
due date (determined with regard to any extensions) of the return of tax 
for such taxable year is after the date of the enactment of this Act.

    TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER 
                              DISTRIBUTIONS

SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION REQUIREMENTS AND 
                        ALLOCATION RULES FOR REGULATED INVESTMENT 
                        COMPANIES.

    (a) Capital Gain Dividends.--
            (1) In general.--Subparagraph (C) of section 852(b)(3) is 
        amended to read as follows:
                    ``(C) Definition of capital gain dividend.--For 
                purposes of this part--
                          ``(i) In general.--Except as provided in 
                      clause (ii), a capital gain dividend is any 
                      dividend, or part thereof, which is reported by 
                      the company as a capital gain dividend in written 
                      statements furnished to its shareholders.
                          ``(ii) Excess reported amounts.--If the 
                      aggregate reported amount with respect to the 
                      company for any taxable year exceeds the net 
                      capital gain of the company for such taxable year, 
                      a capital gain dividend is the excess of--
                                    ``(I) the reported capital gain 
                                dividend amount, over
                                    ``(II) the excess reported amount 
                                which is allocable to such reported 
                                capital gain dividend amount.
                          ``(iii) Allocation of excess reported 
                      amount.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), the excess 
                                reported amount (if any) which is 
                                allocable to the reported capital gain 
                                dividend amount is that portion of the 
                                excess reported amount which bears the 
                                same ratio to the excess

[[Page 124 STAT. 3542]]

                                reported amount as the reported capital 
                                gain dividend amount bears to the 
                                aggregate reported amount.
                                    ``(II) Special rule for noncalendar 
                                year taxpayers.--In the 
                                case <<NOTE: Applicability.>>  of any 
                                taxable year which does not begin and 
                                end in the same calendar year, if the 
                                post-December reported amount equals or 
                                exceeds the excess reported amount for 
                                such taxable year, subclause (I) shall 
                                be applied by substituting `post-
                                December reported amount' for `aggregate 
                                reported amount' and no excess reported 
                                amount shall be allocated to any 
                                dividend paid on or before December 31 
                                of such taxable year.
                          ``(iv) Definitions.--For purposes of this 
                      subparagraph--
                                    ``(I) Reported capital gain dividend 
                                amount.--The term `reported capital gain 
                                dividend amount' means the amount 
                                reported to its shareholders under 
                                clause (i) as a capital gain dividend.
                                    ``(II) Excess reported amount.--The 
                                term `excess reported amount' means the 
                                excess of the aggregate reported amount 
                                over the net capital gain of the company 
                                for the taxable year.
                                    ``(III) Aggregate reported amount.--
                                The term `aggregate reported amount' 
                                means the aggregate amount of dividends 
                                reported by the company under clause (i) 
                                as capital gain dividends for the 
                                taxable year (including capital gain 
                                dividends paid after the close of the 
                                taxable year described in section 855).
                                    ``(IV) Post-december reported 
                                amount.--The term `post-December 
                                reported amount' means the aggregate 
                                reported amount determined by taking 
                                into account only dividends paid after 
                                December 31 of the taxable year.
                          ``(v) Adjustment for determinations.--If there 
                      is an increase in the excess described in 
                      subparagraph (A) for the taxable year which 
                      results from a determination (as defined in 
                      section 860(e)), the company may, subject to the 
                      limitations of this subparagraph, increase the 
                      amount of capital gain dividends reported under 
                      clause (i).
                          ``(vi) Special rule for losses late in the 
                      calendar year.--For special rule for certain 
                      losses after October 31, see paragraph (8).''.
            (2) Conforming amendment.--Subparagraph (B) of section 
        860(f)(2) is <<NOTE: 26 USC 860.>>  amended by inserting ``or 
        reported (as the case may be)'' after ``designated''.

    (b) Exempt-Interest Dividends.--Subparagraph (A) of section 
852(b)(5) is amended to read as follows:
                    ``(A) Definition of exempt-interest dividend.--
                          ``(i) In general.--Except as provided in 
                      clause (ii), an exempt-interest dividend is any 
                      dividend or part thereof (other than a capital 
                      gain dividend) paid by a regulated investment 
                      company and reported by the company as an exempt-
                      interest dividend in written statements furnished 
                      to its shareholders.

[[Page 124 STAT. 3543]]

                          ``(ii) Excess reported amounts.--If the 
                      aggregate reported amount with respect to the 
                      company for any taxable year exceeds the exempt 
                      interest of the company for such taxable year, an 
                      exempt-interest dividend is the excess of--
                                    ``(I) the reported exempt-interest 
                                dividend amount, over
                                    ``(II) the excess reported amount 
                                which is allocable to such reported 
                                exempt-interest dividend amount.
                          ``(iii) Allocation of excess reported 
                      amount.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), the excess 
                                reported amount (if any) which is 
                                allocable to the reported exempt-
                                interest dividend amount is that portion 
                                of the excess reported amount which 
                                bears the same ratio to the excess 
                                reported amount as the reported exempt-
                                interest dividend amount bears to the 
                                aggregate reported amount.
                                    ``(II) Special rule for noncalendar 
                                year taxpayers.--In the 
                                case <<NOTE: Applicability.>>  of any 
                                taxable year which does not begin and 
                                end in the same calendar year, if the 
                                post-December reported amount equals or 
                                exceeds the excess reported amount for 
                                such taxable year, subclause (I) shall 
                                be applied by substituting `post-
                                December reported amount' for `aggregate 
                                reported amount' and no excess reported 
                                amount shall be allocated to any 
                                dividend paid on or before December 31 
                                of such taxable year.
                          ``(iv) Definitions.--For purposes of this 
                      subparagraph--
                                    ``(I) Reported exempt-interest 
                                dividend amount.--The term `reported 
                                exempt-interest dividend amount' means 
                                the amount reported to its shareholders 
                                under clause (i) as an exempt-interest 
                                dividend.
                                    ``(II) Excess reported amount.--The 
                                term `excess reported amount' means the 
                                excess of the aggregate reported amount 
                                over the exempt interest of the company 
                                for the taxable year.
                                    ``(III) Aggregate reported amount.--
                                The term `aggregate reported amount' 
                                means the aggregate amount of dividends 
                                reported by the company under clause (i) 
                                as exempt-interest dividends for the 
                                taxable year (including exempt-interest 
                                dividends paid after the close of the 
                                taxable year described in section 855).
                                    ``(IV) Post-december reported 
                                amount.--The term `post-December 
                                reported amount' means the aggregate 
                                reported amount determined by taking 
                                into account only dividends paid after 
                                December 31 of the taxable year.
                                    ``(V) Exempt interest.--The term 
                                `exempt interest' means, with respect to 
                                any regulated investment company, the 
                                excess of the amount of interest 
                                excludable from gross income under

[[Page 124 STAT. 3544]]

                                section 103(a) over the amounts 
                                disallowed as deductions under sections 
                                265 and 171(a)(2).''.

    (c) Foreign Tax Credits.--
            (1) In general.--Subsection (c) of section 853 <<NOTE: 26 
        USC 853.>>  is amended--
                    (A) by striking ``so designated by the company in a 
                written notice mailed to its shareholders not later than 
                60 days after the close of the taxable year'' and 
                inserting ``so reported by the company in a written 
                statement furnished to such shareholder'', and
                    (B) by striking ``Notice'' in the heading and 
                inserting ``Statements''.
            (2) Conforming amendments.--Subsection (d) of section 853 is 
        amended--
                    (A) by striking ``and the notice to shareholders 
                required by subsection (c)'' in the text thereof, and
                    (B) by striking ``and Notifying Shareholders'' in 
                the heading thereof.

    (d) Credits for Tax Credit Bonds.--
            (1) In general.--Subsection (c) of section 853A is amended--
                    (A) by striking ``so designated by the regulated 
                investment company in a written notice mailed to its 
                shareholders not later than 60 days after the close of 
                its taxable year'' and inserting ``so reported by the 
                regulated investment company in a written statement 
                furnished to such shareholder'', and
                    (B) by striking ``Notice'' in the heading and 
                inserting ``Statements''.
            (2) Conforming amendments.--Subsection (d) of section 853A 
        is amended--
                    (A) by striking ``and the notice to shareholders 
                required by subsection (c)'' in the text thereof, and
                    (B) by striking ``and Notifying Shareholders'' in 
                the heading thereof.

    (e) Dividend Received Deduction, etc.--
            (1) In general.--Paragraph (1) of section 854(b) is 
        amended--
                    (A) by striking ``designated under this subparagraph 
                by the regulated investment company'' in subparagraph 
                (A) and inserting ``reported by the regulated investment 
                company as eligible for such deduction in written 
                statements furnished to its shareholders'',
                    (B) by striking ``designated by the regulated 
                investment company'' in subparagraph (B)(i) and 
                inserting ``reported by the regulated investment company 
                as qualified dividend income in written statements 
                furnished to its shareholders'',
                    (C) by striking ``designated'' in subparagraph 
                (C)(i) and inserting ``reported'', and
                    (D) by striking ``designated'' in subparagraph 
                (C)(ii) and inserting ``reported''.
            (2) Conforming amendments.--Subsection (b) of section 854 is 
        amended by striking paragraph (2) and by redesignating 
        paragraphs (3), (4), and (5), as paragraphs (2), (3), and (4), 
        respectively.

    (f) Dividends Paid to Certain Foreign Persons.--

[[Page 124 STAT. 3545]]

            (1) Interest-related dividends.--Subparagraph (C) of section 
        871(k)(1) is <<NOTE: 26 USC 871.>>  amended by striking all that 
        precedes ``any taxable year of the company beginning'' and 
        inserting the following:
                    ``(C) Interest-related dividend.--For purposes of 
                this paragraph--
                          ``(i) In general.--Except as provided in 
                      clause (ii), an interest related dividend is any 
                      dividend, or part thereof, which is reported by 
                      the company as an interest related dividend in 
                      written statements furnished to its shareholders.
                          ``(ii) Excess reported amounts.--If the 
                      aggregate reported amount with respect to the 
                      company for any taxable year exceeds the qualified 
                      net interest income of the company for such 
                      taxable year, an interest related dividend is the 
                      excess of--
                                    ``(I) the reported interest related 
                                dividend amount, over
                                    ``(II) the excess reported amount 
                                which is allocable to such reported 
                                interest related dividend amount.
                          ``(iii) Allocation of excess reported 
                      amount.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), the excess 
                                reported amount (if any) which is 
                                allocable to the reported interest 
                                related dividend amount is that portion 
                                of the excess reported amount which 
                                bears the same ratio to the excess 
                                reported amount as the reported interest 
                                related dividend amount bears to the 
                                aggregate reported amount.
                                    ``(II) Special rule for noncalendar 
                                year taxpayers.--In the 
                                case <<NOTE: Applicability.>>  of any 
                                taxable year which does not begin and 
                                end in the same calendar year, if the 
                                post-December reported amount equals or 
                                exceeds the excess reported amount for 
                                such taxable year, subclause (I) shall 
                                be applied by substituting `post-
                                December reported amount' for `aggregate 
                                reported amount' and no excess reported 
                                amount shall be allocated to any 
                                dividend paid on or before December 31 
                                of such taxable year.
                          ``(iv) Definitions.--For purposes of this 
                      subparagraph--
                                    ``(I) Reported interest related 
                                dividend amount.--The term `reported 
                                interest related dividend amount' means 
                                the amount reported to its shareholders 
                                under clause (i) as an interest related 
                                dividend.
                                    ``(II) Excess reported amount.--The 
                                term `excess reported amount' means the 
                                excess of the aggregate reported amount 
                                over the qualified net interest income 
                                of the company for the taxable year.
                                    ``(III) Aggregate reported amount.--
                                The term `aggregate reported amount' 
                                means the aggregate amount of dividends 
                                reported by the company under clause (i) 
                                as interest related dividends for

[[Page 124 STAT. 3546]]

                                the taxable year (including interest 
                                related dividends paid after the close 
                                of the taxable year described in section 
                                855).
                                    ``(IV) Post-december reported 
                                amount.--The term `post-December 
                                reported amount' means the aggregate 
                                reported amount determined by taking 
                                into account only dividends paid after 
                                December 31 of the taxable year.
                          ``(v) Termination.--The term `interest related 
                      dividend' shall not include any dividend with 
                      respect to''.
            (2) Short-term capital gain dividends.--Subparagraph (C) of 
        section 871(k)(2) <<NOTE: 26 USC 871.>>  is amended by striking 
        all that precedes ``any taxable year of the company beginning'' 
        and inserting the following:
                    ``(C) <<NOTE: Definitions.>>  Short-term capital 
                gain dividend.--For purposes of this paragraph--
                          ``(i) In general.--Except as provided in 
                      clause (ii), the term `short-term capital gain 
                      dividend' means any dividend, or part thereof, 
                      which is reported by the company as a short-term 
                      capital gain dividend in written statements 
                      furnished to its shareholders.
                          ``(ii) Excess reported amounts.--If the 
                      aggregate reported amount with respect to the 
                      company for any taxable year exceeds the qualified 
                      short-term gain of the company for such taxable 
                      year, the term `short-term capital gain dividend' 
                      means the excess of--
                                    ``(I) the reported short-term 
                                capital gain dividend amount, over
                                    ``(II) the excess reported amount 
                                which is allocable to such reported 
                                short-term capital gain dividend amount.
                          ``(iii) Allocation of excess reported 
                      amount.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), the excess 
                                reported amount (if any) which is 
                                allocable to the reported short-term 
                                capital gain dividend amount is that 
                                portion of the excess reported amount 
                                which bears the same ratio to the excess 
                                reported amount as the reported short-
                                term capital gain dividend amount bears 
                                to the aggregate reported amount.
                                    ``(II) Special rule for noncalendar 
                                year taxpayers.--In the 
                                case <<NOTE: Applicability.>>  of any 
                                taxable year which does not begin and 
                                end in the same calendar year, if the 
                                post-December reported amount equals or 
                                exceeds the excess reported amount for 
                                such taxable year, subclause (I) shall 
                                be applied by substituting `post-
                                December reported amount' for `aggregate 
                                reported amount' and no excess reported 
                                amount shall be allocated to any 
                                dividend paid on or before December 31 
                                of such taxable year.
                          ``(iv) Definitions.--For purposes of this 
                      subparagraph--
                                    ``(I) Reported short-term capital 
                                gain dividend amount.--The term 
                                `reported short-term capital gain 
                                dividend amount' means the amount 
                                reported to its shareholders under 
                                clause (i) as a short-term capital gain 
                                dividend.

[[Page 124 STAT. 3547]]

                                    ``(II) Excess reported amount.--The 
                                term `excess reported amount' means the 
                                excess of the aggregate reported amount 
                                over the qualified short-term gain of 
                                the company for the taxable year.
                                    ``(III) Aggregate reported amount.--
                                The term `aggregate reported amount' 
                                means the aggregate amount of dividends 
                                reported by the company under clause (i) 
                                as short-term capital gain dividends for 
                                the taxable year (including short-term 
                                capital gain dividends paid after the 
                                close of the taxable year described in 
                                section 855).
                                    ``(IV) Post-december reported 
                                amount.--The term `post-December 
                                reported amount' means the aggregate 
                                reported amount determined by taking 
                                into account only dividends paid after 
                                December 31 of the taxable year.
                          ``(v) Termination.--The term `short-term 
                      capital gain dividend' shall not include any 
                      dividend with respect to''.

    (g) Conforming Amendments.--Section 855 <<NOTE: 26 USC 855.>>  is 
amended--
            (1) by striking subsection (c) and redesignating subsection 
        (d) as subsection (c), and
            (2) by striking ``, (c) and (d)'' in subsection (a) and 
        inserting ``and (c)''.

    (h) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.

    (i) Application of JGTRRA Sunset.--Section 303 of the Jobs and 
Growth Tax Relief Reconciliation Act of 2003 <<NOTE: 26 USC 854 note.>>  
shall apply to the amendments made by subparagraphs (B) and (D) of 
subsection (e)(1) to the same extent and in the same manner as section 
303 of such Act applies to the amendments made by section 302 of such 
Act.
SEC. 302. EARNINGS AND PROFITS OF REGULATED INVESTMENT COMPANIES.

    (a) In General.--Paragraph (1) of section 852(c) is amended to read 
as follows:
            ``(1) Treatment of nondeductible items.--
                    ``(A) Net capital loss.--If a regulated investment 
                company has a net capital loss for any taxable year--
                          ``(i) such net capital loss shall not be taken 
                      into account for purposes of determining the 
                      company's earnings and profits, and
                          ``(ii) any capital loss arising on the first 
                      day of the next taxable year by reason of clause 
                      (ii) or (iii) of section 1212(a)(3)(A) shall be 
                      treated as so arising for purposes of determining 
                      earnings and profits.
                    ``(B) Other nondeductible items.--
                          ``(i) In general.--The earnings and profits of 
                      a regulated investment company for any taxable 
                      year (but not its accumulated earnings and 
                      profits) shall not be reduced by any amount which 
                      is not allowable as a deduction (other than by 
                      reason of section 265 or 171(a)(2)) in computing 
                      its taxable income for such taxable year.

[[Page 124 STAT. 3548]]

                          ``(ii) Coordination with treatment of net 
                      capital losses.--Clause (i) shall not apply to a 
                      net capital loss to which subparagraph (A) 
                      applies.''.

    (b) Conforming Amendments.--
            (1) Subsection (c) of section 852 <<NOTE: 26 USC 852.>>  is 
        amended by adding at the end the following new paragraph:
            ``(4) Regulated investment company.--For purposes of this 
        subsection, the term `regulated investment company' includes a 
        domestic corporation which is a regulated investment company 
        determined without regard to the requirements of subsection 
        (a).''.
            (2) Paragraphs (1)(A) and (2)(A) of section 871(k) are each 
        amended by inserting ``which meets the requirements of section 
        852(a) for the taxable year with respect to which the dividend 
        is paid'' before the period at the end.

    (c) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.
SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS AND FOREIGN TAX 
                        CREDITS IN FUND OF FUNDS STRUCTURE.

    (a) In General.--Section 852 is amended by adding at the end the 
following new subsection:
    ``(g) Special Rules for Fund of Funds.--
            ``(1) In general.--In the case of a qualified fund of 
        funds--
                    ``(A) such fund shall be qualified to pay exempt-
                interest dividends to its shareholders without regard to 
                whether such fund satisfies the requirements of the 
                first sentence of subsection (b)(5), and
                    ``(B) such fund may elect the application of section 
                853 (relating to foreign tax credit allowed to 
                shareholders) without regard to the requirement of 
                subsection (a)(1) thereof.
            ``(2) Qualified fund of funds.--For purposes of this 
        subsection, the term `qualified fund of funds' means a regulated 
        investment company if (at the close of each quarter of the 
        taxable year) at least 50 percent of the value of its total 
        assets is represented by interests in other regulated investment 
        companies.''.

    (b) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendment made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.
SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVIDENDS OF 
                        REGULATED INVESTMENT COMPANIES.

    (a) Deadline for Declaration of Dividend.--Paragraph (1) of section 
855(a) is amended to read as follows:
            ``(1) declares a dividend before the later of--
                    ``(A) the 15th day of the 9th month following the 
                close of the taxable year, or
                    ``(B) in the case of an extension of time for filing 
                the company's return for the taxable year, the due date 
                for filing such return taking into account such 
                extension, and''.

    (b) Deadline for Distribution of Dividend.--Paragraph (2) of section 
855(a) is amended by striking ``the first regular dividend payment'' and 
inserting ``the first dividend payment of the same type of dividend''.

[[Page 124 STAT. 3549]]

    (c) Short-term Capital Gain.--Subsection (a) <<NOTE: 26 USC 855.>>  
of section 855 is amended by adding at the end the following: ``For 
purposes of paragraph (2), a dividend attributable to any short-term 
capital gain with respect to which a notice is required under the 
Investment Company Act of 1940 shall be treated as the same type of 
dividend as a capital gain dividend.''.

    (d) <<NOTE: 26 USC 855 note.>>  Effective Date.--The amendments made 
by this section shall apply to distributions in taxable years beginning 
after the date of the enactment of this Act.
SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGULATED INVESTMENT 
                        COMPANIES.

    (a) In General.--Subsection (b) of section 316 is amended by adding 
at the end the following new paragraph:
            ``(4) Certain distributions by regulated investment 
        companies in excess of earnings and profits.--In the case of a 
        regulated investment company that has a taxable year other than 
        a calendar year, if the distributions by the company with 
        respect to any class of stock of such company for the taxable 
        year exceed the company's current and accumulated earnings and 
        profits which may be used for the payment of dividends on such 
        class of stock, the company's current earnings and profits 
        shall, for purposes of subsection (a), be allocated first to 
        distributions with respect to such class of stock made during 
        the portion of the taxable year which precedes January 1.''.

    (b) <<NOTE: 26 USC 316 note.>>  Effective Date.--The amendment made 
by this section shall apply to distributions made in taxable years 
beginning after the date of the enactment of this Act.
SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A REGULATED 
                        INVESTMENT COMPANY.

    (a) Redemptions Treated as Exchanges.--
            (1) In general.--Subsection (b) of section 302 is amended by 
        redesignating paragraph (5) as paragraph (6) and by inserting 
        after paragraph (4) the following new paragraph:
            ``(5) Redemptions by certain regulated investment 
        companies.--Except to the extent provided in regulations 
        prescribed by the Secretary, subsection (a) shall apply to any 
        distribution in redemption of stock of a publicly offered 
        regulated investment company (within the meaning of section 
        67(c)(2)(B)) if--
                    ``(A) such redemption is upon the demand of the 
                stockholder, and
                    ``(B) such company issues only stock which is 
                redeemable upon the demand of the stockholder.''.
            (2) Conforming amendment.--Subsection (a) of section 302 is 
        amended by striking ``or (4)'' and inserting ``(4), or (5)''.

    (b) <<NOTE: 26 USC 267 note.>>  Losses on Redemptions Not Disallowed 
for Fund-of-funds Regulated Investment Companies.--Paragraph (3) of 
section 267(f) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Redemptions by fund-of-funds regulated 
                investment companies.--Except to the extent provided in 
                regulations prescribed by the Secretary, subsection 
                (a)(1) shall not apply to any distribution in redemption 
                of stock of a regulated investment company if--

[[Page 124 STAT. 3550]]

                          ``(i) such company issues only stock which is 
                      redeemable upon the demand of the stockholder, and
                          ``(ii) such redemption is upon the demand of 
                      another regulated investment company.''.

    (c) <<NOTE: 26 USC 267 note.>>  Effective Date.--The amendments made 
by this section shall apply to distributions after the date of the 
enactment of this Act.
SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY 
                        OFFERED REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subsection (c) of section 562 is amended by 
striking ``The amount'' and inserting ``Except in the case of a publicly 
offered regulated investment company (as defined in section 
67(c)(2)(B)), the amount''.
    (b) Conforming Amendment.--Section 562(c) is amended by inserting 
``(other than a publicly offered regulated investment company (as so 
defined))'' after ``regulated investment company'' in the second 
sentence thereof.
    (c) <<NOTE: 26 USC 562 note.>>  Effective Date.--The amendments made 
by this section shall apply to distributions in taxable years beginning 
after the date of the enactment of this Act.
SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR LOSSES OF 
                        REGULATED INVESTMENT COMPANIES.

    (a) In General.--Paragraph (8) of section 852(b) is amended to read 
as follows:
            ``(8) Elective deferral of certain late-year losses.--
                    ``(A) In general.--Except as otherwise provided by 
                the Secretary, a regulated investment company may elect 
                for any taxable year to treat any portion of any 
                qualified late-year loss for such taxable year as 
                arising on the first day of the following taxable year 
                for purposes of this title.
                    ``(B) Qualified late-year loss.--For purposes of 
                this paragraph, the term `qualified late-year loss' 
                means--
                          ``(i) any post-October capital loss, and
                          ``(ii) any late-year ordinary loss.
                    ``(C) Post-october capital loss.--For purposes of 
                this paragraph, the term `post-October capital loss' 
                means the greatest of--
                          ``(i) the net capital loss attributable to the 
                      portion of the taxable year after October 31,
                          ``(ii) the net long-term capital loss 
                      attributable to such portion of the taxable year, 
                      or
                          ``(iii) the net short-term capital loss 
                      attributable to such portion of the taxable year.
                    ``(D) Late-year ordinary loss.--For purposes of this 
                paragraph, the term `late-year ordinary loss' means the 
                excess (if any) of--
                          ``(i) the sum of--
                                    ``(I) the specified losses (as 
                                defined in section 4982(e)(5)(B)(ii)) 
                                attributable to the portion of the 
                                taxable year after October 31, plus
                                    ``(II) the ordinary losses not 
                                described in subclause (I) attributable 
                                to the portion of the taxable year after 
                                December 31, over
                          ``(ii) the sum of--

[[Page 124 STAT. 3551]]

                                    ``(I) the specified gains (as 
                                defined in section 4982(e)(5)(B)(i)) 
                                attributable to the portion of the 
                                taxable year after October 31, plus
                                    ``(II) the ordinary income not 
                                described in subclause (I) attributable 
                                to the portion of the taxable year after 
                                December 31.
                    ``(E) Special rule for companies determining 
                required capital gain distributions on taxable year 
                basis.--In the case of a company to which an election 
                under section 4982(e)(4) applies--
                          ``(i) if such company's taxable year ends with 
                      the month of November, the amount of qualified 
                      late-year losses (if any) shall be computed 
                      without regard to any income, gain, or loss 
                      described in subparagraphs (C), (D)(i)(I), and 
                      (D)(ii)(I), and
                          ``(ii) if such company's taxable year ends 
                      with the month of December, subparagraph (A) shall 
                      not apply.''.

    (b) Conforming Amendments.--
            (1) Subsection (b) of section 852 <<NOTE: 26 USC 852.>>  is 
        amended by striking paragraph (10).
            (2) Paragraph (2) of section 852(c) is amended by striking 
        the first sentence and inserting the following: ``For purposes 
        of applying this chapter to distributions made by a regulated 
        investment company with respect to any calendar year, the 
        earnings and profits of such company shall be determined without 
        regard to any net capital loss attributable to the portion of 
        the taxable year after October 31 and without regard to any 
        late-year ordinary loss (as defined in subsection (b)(8)(D)).''
            (3) Subparagraph (D) of section 871(k)(2) is amended by 
        striking the last two sentences and inserting the following: 
        ``For purposes of this subparagraph, the net short-term capital 
        gain of the regulated investment company shall be computed by 
        treating any short-term capital gain dividend includible in 
        gross income with respect to stock of another regulated 
        investment company as a short-term capital gain.''.

    (c) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.
SEC. 309. EXCEPTION TO HOLDING PERIOD REQUIREMENT FOR CERTAIN 
                        REGULARLY DECLARED EXEMPT-INTEREST 
                        DIVIDENDS.

    (a) In General.--Subparagraph (E) of section 852(b)(4) is amended by 
striking all that precedes ``In the case of a regulated investment 
company'' and inserting the following:
                    ``(E) Exception to holding period requirement for 
                certain regularly declared exempt-interest dividends.--
                          ``(i) Daily dividend companies.--Except as 
                      otherwise provided by regulations, subparagraph 
                      (B) shall not apply with respect to a regular 
                      dividend paid by a regulated investment company 
                      which declares exempt-interest dividends on a 
                      daily basis in an amount equal to at least 90 
                      percent of its net tax-exempt interest and 
                      distributes such dividends on a monthly or more 
                      frequent basis.

[[Page 124 STAT. 3552]]

                          ``(ii) Authority to shorten required holding 
                      period with respect to other companies.--''.

    (b) Conforming Amendment.--Clause (ii) of section 852(b)(4)(E), as 
amended by subsection (a), <<NOTE: 26 USC 852.>>  is amended by 
inserting ``(other than a company described in clause (i))'' after 
``regulated investment company''.

    (c) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendments made 
by this section shall apply to losses incurred on shares of stock for 
which the taxpayer's holding period begins after the date of the 
enactment of this Act.

 TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED 
                          INVESTMENT COMPANIES

SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGULATED INVESTMENT 
                        COMPANIES OWNED BY TAX EXEMPT ENTITIES.

    (a) In General.--Subsection (f) of section 4982 is amended--
            (1) by striking ``either'' in the matter preceding paragraph 
        (1),
            (2) by striking ``or'' at the end of paragraph (1),
            (3) by striking the period at the end of paragraph (2), and
            (4) by inserting after paragraph (2) the following new 
        paragraphs:
            ``(3) any other tax-exempt entity whose ownership of 
        beneficial interests in the company would not preclude the 
        application of section 817(h)(4), or
            ``(4) another regulated investment company described in this 
        subsection.''.

    (b) <<NOTE: 26 USC 4982 note.>>  Effective Date.--The amendment made 
by this section shall apply to calendar years beginning after the date 
of the enactment of this Act.
SEC. 402. DEFERRAL OF CERTAIN GAINS AND LOSSES OF REGULATED 
                        INVESTMENT COMPANIES FOR EXCISE TAX 
                        PURPOSES.

    (a) In General.--Subsection (e) of section 4982 is amended by 
striking paragraphs (5) and (6) and inserting the following new 
paragraphs:
            ``(5) Treatment of specified gains and losses after october 
        31 of calendar year.--
                    ``(A) In general.--Any specified gain or specified 
                loss which (but for this paragraph) would be properly 
                taken into account for the portion of the calendar year 
                after October 31 shall be treated as arising on January 
                1 of the following calendar year.
                    ``(B) Specified gains and losses.--For purposes of 
                this paragraph--
                          ``(i) Specified gain.--The term `specified 
                      gain' means ordinary gain from the sale, exchange, 
                      or other disposition of property (including the 
                      termination of a position with respect to such 
                      property). Such term shall include any foreign 
                      currency gain attributable to a section 988 
                      transaction (within the meaning of

[[Page 124 STAT. 3553]]

                      section 988) and any amount includible in gross 
                      income under section 1296(a)(1).
                          ``(ii) Specified loss.--The term `specified 
                      loss' means ordinary loss from the sale, exchange, 
                      or other disposition of property (including the 
                      termination of a position with respect to such 
                      property). Such term shall include any foreign 
                      currency loss attributable to a section 988 
                      transaction (within the meaning of section 988) 
                      and any amount allowable as a deduction under 
                      section 1296(a)(2).
                    ``(C) Special rule for companies electing to use the 
                taxable year.--In the case of any company making an 
                election under paragraph (4), subparagraph (A) shall be 
                applied by substituting the last day of the company's 
                taxable year for October 31.
            ``(6) Treatment of mark to market gain.--
                    ``(A) In general.--For purposes of determining a 
                regulated investment company's ordinary income, 
                notwithstanding paragraph (1)(C), each specified mark to 
                market provision shall be applied as if such company's 
                taxable year ended on October 31. In the case of a 
                company making an election under paragraph (4), the 
                preceding sentence shall be applied by substituting the 
                last day of the company's taxable year for October 31.
                    ``(B) Specified mark to market provision.--For 
                purposes of this paragraph, the term `specified mark to 
                market provision' means sections 1256 and 1296 and any 
                other provision of this title (or regulations 
                thereunder) which treats property as disposed of on the 
                last day of the taxable year.
            ``(7) Elective deferral of certain ordinary losses.--Except 
        as provided in regulations prescribed by the Secretary, in the 
        case of a regulated investment company which has a taxable year 
        other than the calendar year--
                    ``(A) such company may elect to determine its 
                ordinary income for the calendar year without regard to 
                any net ordinary loss (determined without regard to 
                specified gains and losses taken into account under 
                paragraph (5)) which is attributable to the portion of 
                such calendar year which is after the beginning of the 
                taxable year which begins in such calendar year, and
                    ``(B) any amount of net ordinary loss not taken into 
                account for a calendar year by reason of subparagraph 
                (A) shall be treated as arising on the 1st day of the 
                following calendar year.''.

    (b) <<NOTE: 26 USC 4982 note.>>  Effective Date.--The amendments 
made by this section shall apply to calendar years beginning after the 
date of the enactment of this Act.
SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PURPOSES DETERMINED ON 
                        BASIS OF TAXES PAID BY REGULATED 
                        INVESTMENT COMPANY.

    (a) In General.--Subsection (c) of section 4982 <<NOTE: 26 USC 
4982.>>  is amended by adding at the end the following new paragraph:
            ``(4) Special rule for estimated tax payments.--

[[Page 124 STAT. 3554]]

                    ``(A) In general.--In the case of a regulated 
                investment company which elects the application of this 
                paragraph for any calendar year--
                          ``(i) the distributed amount with respect to 
                      such company for such calendar year shall be 
                      increased by the amount on which qualified 
                      estimated tax payments are made by such company 
                      during such calendar year, and
                          ``(ii) the distributed amount with respect to 
                      such company for the following calendar year shall 
                      be reduced by the amount of such increase.
                    ``(B) Qualified estimated tax payments.--For 
                purposes of this paragraph, the term `qualified 
                estimated tax payments' means, with respect to any 
                calendar year, payments of estimated tax of a tax 
                described in paragraph (1)(B) for any taxable year which 
                begins (but does not end) in such calendar year.''.

    (b) <<NOTE: 26 USC 4982 note.>>  Effective Date.--The amendment made 
by this section shall apply to calendar years beginning after the date 
of the enactment of this Act.
SEC. 404. INCREASE IN REQUIRED DISTRIBUTION OF CAPITAL GAIN NET 
                        INCOME.

    (a) In General.--Subparagraph (B) of section 4982(b)(1) <<NOTE: 26 
USC 4982.>>  is amended by striking ``98 percent'' and inserting ``98.2 
percent''.

    (b) <<NOTE: 26 USC 4982 note.>>  Effective Date.--The amendments 
made by this section shall apply to calendar years beginning after the 
date of the enactment of this Act.

                        TITLE V--OTHER PROVISIONS

SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RESPECT TO LIABILITY 
                        FOR TAX OF REGULATED INVESTMENT COMPANIES.

    (a) In General.--Part I of subchapter B of chapter 68 is amended by 
striking section 6697 (and by striking the item relating to such section 
in the table of sections of such part).
    (b) Conforming Amendment.--Section 860 is amended by striking 
subsection (j).
    (c) <<NOTE: 26 USC 860 note.>>  Effective Date.--The amendments made 
by this section shall apply to taxable years beginning after the date of 
the enactment of this Act.
SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL RULE FOR 
                        REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subparagraph (C) of section 852(f)(1) is amended by 
striking ``subsequently acquires'' and inserting ``acquires, during the 
period beginning on the date of the disposition referred to in 
subparagraph (B) and ending on January 31 of the calendar year following 
the calendar year that includes the date of such disposition,''.

[[Page 124 STAT. 3555]]

    (b) <<NOTE: 26 USC 852 note.>>  Effective Date.--The amendment made 
by this section shall apply to charges incurred in taxable years 
beginning after the date of the enactment of this Act.

    Approved December 22, 2010.

LEGISLATIVE HISTORY--H.R. 4337:
---------------------------------------------------------------------------

CONGRESSIONAL RECORD, Vol. 156 (2010):
            Sept. 28, considered and passed House.
            Dec. 8, considered and passed Senate, amended.
            Dec. 15, House concurred in Senate amendment.

                                  <all>
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