I 

111TH CONGRESS 

1ST SESSION H. R. 4337 

To amend the Internal Revenue Code of 1986 to modify certain rules 

applicable to regulated investment companies, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 16, 2009 

Mr. RANGEL (for himself, Mr. NEAL of Massachusetts, Mr. CROWLEY, and 

Ms. SCHWARTZ) introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to modify 

certain rules applicable to regulated investment companies, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE, ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Regulated Investment Company Modernization Act of 

6 2009’’. 

7 (b) REFERENCE.—Except as otherwise expressly pro8 vided, whenever in this Act an amendment or repeal is 

9 expressed in terms of an amendment to, or repeal of, a 

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1 section or other provision, the reference shall be consid2 ered to be made to a section or other provision of the In3 ternal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 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. Income from commodities counted toward gross income test of regulated investment companies. 

Sec. 202. 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. 

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. 

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. 

TITLE V—OTHER PROVISIONS 

Sec. 501. Repeal of assessable penalty with respect to liability for tax of regulated investment companies. 

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Sec. 502. Modification of sales load basis deferral rule for regulated investment 

companies. 

1 TITLE I—CAPITAL LOSS 

2 CARRYOVERS OF REGULATED 

3 INVESTMENT COMPANIES 

4 SEC. 101. CAPITAL LOSS CARRYOVERS OF REGULATED IN5 VESTMENT COMPANIES. 

6 (a) IN GENERAL.—Subsection (a) of section 1212 is 

7 amended by redesignating paragraph (3) as paragraph (4) 

8 and by inserting after paragraph (2) the following new 

9 paragraph: 

10 ‘‘(3) REGULATED INVESTMENT COMPANIES.— 

11 ‘‘(A) IN GENERAL.—If a regulated invest12 ment company has a net capital loss for any 

13 taxable year— 

14 ‘‘(i) paragraph (1) shall not apply to 

15 such loss, 

16 ‘‘(ii) the excess of the net short-term 

17 capital loss over the net long-term capital 

18 gain for such year shall be a short-term 

19 capital loss arising on the first day of the 

20 next taxable year, and 

21 ‘‘(iii) the excess of the net long-term 

22 capital loss over the net short-term capital 

23 gain for such year shall be a long-term 

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1 capital loss arising on the first day of the 

2 next taxable year. 

3 ‘‘(B) COORDINATION WITH GENERAL

4 RULE.—If a net capital loss to which paragraph 

5 (1) applies is carried over to a taxable year of 

6 a regulated investment company— 

7 ‘‘(i) LOSSES TO WHICH THIS PARA8 GRAPH APPLIES.—Clauses (ii) and (iii) of 

9 subparagraph (A) shall be applied without 

10 regard to any amount treated as a short11 term capital loss under paragraph (1). 

12 ‘‘(ii) LOSSES TO WHICH GENERAL

13 RULE APPLIES.—Paragraph (1) shall be 

14 applied by substituting ‘net capital loss for 

15 the loss year or any taxable year thereafter 

16 (other than a net capital loss to which 

17 paragraph (3)(A) applies)’ for ‘net capital 

18 loss for the loss year or any taxable year 

19 thereafter’.’’. 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) Subparagraph (C) of section 1212(a)(1) is 

22 amended to read as follows: 

23 ‘‘(C) a capital loss carryover to each of the 

24 10 taxable years succeeding the loss year, but 

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1 only to the extent such loss is attributable to a 

2 foreign expropriation loss,’’. 

3 (2) Paragraph (10) of section 1222 is amended 

4 by striking ‘‘section 1212’’ and inserting ‘‘section 

5 1212(a)(1)’’. 

6 (c) EFFECTIVE DATE.— 

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section 

9 shall apply to net capital losses for taxable years be10 ginning after the date of the enactment of this Act. 

11 (2) COORDINATION RULES.—Subparagraph (B) 

12 of section 1212(a)(3) of the Internal Revenue Code 

13 of 1986, as added by this section, shall apply to tax14 able years beginning after the date of the enactment 

15 of this Act. 

16 TITLE II—MODIFICATION OF 

17 GROSS INCOME AND ASSET 

18 TESTS OF REGULATED IN19 VESTMENT COMPANIES 

20 SEC. 201. INCOME FROM COMMODITIES COUNTED TOWARD 

21 GROSS INCOME TEST OF REGULATED IN22 VESTMENT COMPANIES. 

23 (a) GROSS INCOME TEST.—Subparagraph (A) of sec24 tion 851(b)(2) is amended— 

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1 (1) by striking ‘‘foreign currencies’’ and insert2 ing ‘‘commodities’’, and 

3 (2) by striking ‘‘or currencies’’ and inserting 

4 ‘‘or commodities’’. 

5 (b) REPEAL OF REGULATORY AUTHORITY TO EX6 CLUDE CERTAIN FOREIGN CURRENCY GAINS FROM

7 QUALIFYING INCOME.—Paragraph (3) of section 851(b) 

8 is amended by striking ‘‘For purposes of paragraph (2), 

9 the Secretary may by regulation exclude from qualifying 

10 income foreign currency gains which are not directly re11 lated to the company’s principal business of investing in 

12 stock or securities (or options and futures with respect to 

13 stock or securities).’’. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 the date of the enactment of this Act. 

17 SEC. 202. SAVINGS PROVISIONS FOR FAILURES OF REGU18 LATED INVESTMENT COMPANIES TO SATISFY 

19 GROSS INCOME AND ASSET TESTS. 

20 (a) ASSET TEST.—Subsection (d) of section 851 is 

21 amended— 

22 (1) by striking ‘‘A corporation which meets’’ 

23 and inserting the following: 

24 ‘‘(1) IN GENERAL.—A corporation which 

25 meets’’, and 

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1 (2) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) SPECIAL RULES REGARDING FAILURE TO

4 SATISFY REQUIREMENTS.— 

5 ‘‘(A) IN GENERAL.—A corporation that 

6 fails to meet the requirements of subsection 

7 (b)(3) (other than a failure described in sub8 paragraph (B)(i)) for a particular quarter shall 

9 nevertheless be considered to have satisfied the 

10 requirements of such subsection for such quar11 ter if— 

12 ‘‘(i) following the corporation’s identi13 fication of the failure to satisfy the re14 quirements of such subsection for a par15 ticular quarter, a description of each asset 

16 that causes the corporation to fail to sat17 isfy the requirements of such subsection at 

18 the close of such quarter of any taxable 

19 year is set forth in a schedule for such 

20 quarter filed in the manner provided by 

21 the Secretary, 

22 ‘‘(ii) the failure to meet the require23 ments of such subsection for a particular 

24 quarter is due to reasonable cause and not 

25 due to willful neglect, and 

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1 ‘‘(iii)(I) the corporation disposes of 

2 the assets set forth on the schedule speci3 fied in clause (i) within 6 months after the 

4 last day of the quarter in which the cor5 poration’s identification of the failure to 

6 satisfy the requirements of such subsection 

7 occurred or such other time period pre8 scribed by the Secretary and in the manner 

9 prescribed by the Secretary, or 

10 ‘‘(II) the requirements of such sub11 section are otherwise met within the time 

12 period specified in subclause (I). 

13 ‘‘(B) RULE FOR CERTAIN DE MINIMIS

14 FAILURES.—A corporation that fails to meet 

15 the requirements of subsection (b)(3) for a par16 ticular quarter shall nevertheless be considered 

17 to have satisfied the requirements of such sub18 section for such quarter if— 

19 ‘‘(i) such failure is due to the owner20 ship of assets the total value of which does 

21 not exceed the lesser of— 

22 ‘‘(I) 1 percent of the total value 

23 of the corporation’s assets at the end 

24 of the quarter for which such meas25 urement is done, and 

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1 ‘‘(II) $10,000,000, and 

2 ‘‘(ii)(I) the corporation, following the 

3 identification of such failure, disposes of 

4 assets in order to meet the requirements of 

5 such subsection within 6 months after the 

6 last day of the quarter in which the cor7 poration’s identification of the failure to 

8 satisfy the requirements of such subsection 

9 occurred or such other time period pre10 scribed by the Secretary and in the manner 

11 prescribed by the Secretary, or 

12 ‘‘(II) the requirements of such sub13 section are otherwise met within the time 

14 period specified in subclause (I). 

15 ‘‘(C) TAX.— 

16 ‘‘(i) TAX IMPOSED.—If subparagraph 

17 (A) applies to a corporation for any tax18 able year, there is hereby imposed on such 

19 corporation a tax in an amount equal to 

20 the greater of— 

21 ‘‘(I) $50,000, or 

22 ‘‘(II) the amount determined 

23 (pursuant to regulations promulgated 

24 by the Secretary) by multiplying the 

25 net income generated by the assets 

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1 described in the schedule specified in 

2 subparagraph (A)(i) for the period 

3 specified in clause (ii) by the highest 

4 rate of tax specified in section 11. 

5 ‘‘(ii) PERIOD.—For purposes of clause 

6 (i)(II), the period described in this clause 

7 is the period beginning on the first date 

8 that the failure to satisfy the requirements 

9 of subsection (b)(3) occurs as a result of 

10 the ownership of such assets and ending on 

11 the earlier of the date on which the cor12 poration disposes of such assets or the end 

13 of the first quarter when there is no longer 

14 a failure to satisfy such subsection. 

15 ‘‘(iii) ADMINISTRATIVE PROVISIONS.— 

16 For purposes of subtitle F, the taxes im17 posed by this subparagraph shall be treat18 ed as excise taxes with respect to which the 

19 deficiency procedures of such subtitle 

20 apply.’’. 

21 (b) GROSS INCOME TEST.—Section 851 is amended 

22 by adding at the end the following new subsection: 

23 ‘‘(i) FAILURE TO SATISFY GROSS INCOME TEST.— 

24 ‘‘(1) DISCLOSURE REQUIREMENT.—A corpora25 tion that fails to meet the requirement of paragraph 

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1 (2) of subsection (b) for any taxable year shall nev2 ertheless be considered to have satisfied the require3 ment of such paragraph for such taxable year if— 

4 ‘‘(A) following the corporation’s identifica5 tion of the failure to meet such requirement for 

6 such taxable year, a description of each item of 

7 its gross income described in such paragraph is 

8 set forth in a schedule for such taxable year 

9 filed in the manner provided by the Secretary, 

10 and 

11 ‘‘(B) the failure to meet such requirement 

12 is due to reasonable cause and not due to will13 ful neglect. 

14 ‘‘(2) IMPOSITION OF TAX ON FAILURES.—If 

15 paragraph (1) applies to a regulated investment 

16 company for any taxable year, there is hereby im17 posed on such company a tax in an amount equal to 

18 the excess of— 

19 ‘‘(A) the gross income of such company 

20 which is not derived from sources referred to in 

21 subsection (b)(2), over 

‘‘(B) 1 22 ⁄9 of the gross income of such com23 pany which is derived from such sources.’’. 

24 (c) DEDUCTION OF TAXES PAID FROM INVESTMENT

25 COMPANY TAXABLE INCOME.—Paragraph (2) of section 

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1 852(b) is amended by adding at the end the following new 

2 subparagraph: 

3 ‘‘(G) There shall be deducted an amount 

4 equal to the tax imposed by subsections (d)(2) 

5 and (i) of section 851 for the taxable year.’’. 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years with respect to 

8 which the due date (determined with regard to any exten9 sions) of the return of tax for such taxable year is after 

10 the date of the enactment of this Act. 

11 TITLE III—MODIFICATION OF 

12 RULES RELATED TO DIVI13 DENDS AND OTHER DIS14 TRIBUTIONS 

15 SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION RE16 QUIREMENTS AND ALLOCATION RULES FOR 

17 REGULATED INVESTMENT COMPANIES. 

18 (a) CAPITAL GAIN DIVIDENDS.— 

19 (1) IN GENERAL.—Subparagraph (C) of section 

20 852(b)(3) is amended to read as follows: 

21 ‘‘(C) DEFINITION OF CAPITAL GAIN DIVI22 DEND.— 

23 ‘‘(i) IN GENERAL.—For purposes of 

24 this part, a capital gain dividend is the ex25 cess of— 

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1 ‘‘(I) the portion of any dividend 

2 which is reported by the company as 

3 a capital gain dividend in a written 

4 statement furnished to its share5 holders (hereafter in this subpara6 graph referred to as the ‘reported cap7 ital gain dividend amount’), over 

8 ‘‘(II) the excess reported amount 

9 (if any) which is allocable to the re10 ported capital gain dividend amount. 

11 ‘‘(ii) ALLOCATION OF EXCESS RE12 PORTED AMOUNT.— 

13 ‘‘(I) IN GENERAL.—Except as 

14 provided in subclause (II), the excess 

15 reported amount (if any) which is al16 locable to the reported capital gain 

17 dividend amount is that portion of the 

18 excess reported amount which bears 

19 the same ratio to the excess reported 

20 amount as the reported capital gain 

21 dividend amount bears to the aggre22 gate reported amount. 

23 ‘‘(II) SPECIAL RULE FOR NON24 CALENDAR YEAR TAXPAYERS.—In the 

25 case of any taxable year which does 

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1 not begin and end in the same cal2 endar year, if the post-December re3 ported amount equals or exceeds the 

4 excess reported amount for such tax5 able year, subclause (I) shall be ap6 plied by substituting ‘post-December 

7 reported amount’ for ‘aggregate re8 ported amount’ and no excess re9 ported amount shall be allocated to 

10 any dividend paid on or before De11 cember 31 of such taxable year. 

12 ‘‘(iii) DEFINITIONS.—For purposes of 

13 this subparagraph— 

14 ‘‘(I) EXCESS REPORTED

15 AMOUNT.—The term ‘excess reported 

16 amount’ means the excess of the ag17 gregate reported amount over the net 

18 capital gain of the company for the 

19 taxable year. 

20 ‘‘(II) AGGREGATE REPORTED

21 AMOUNT.—The term ‘aggregate re22 ported amount’ means the aggregate 

23 amount of dividends reported by the 

24 company under clause (i)(I) as capital 

25 gain dividends for the taxable year 

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1 (including capital gain dividends paid 

2 after the close of the taxable year de3 scribed in section 855). 

4 ‘‘(III) POST-DECEMBER RE5 PORTED AMOUNT.—The term ‘post6 December reported amount’ means 

7 the aggregate reported amount deter8 mined by taking into account only 

9 dividends paid after December 31 of 

10 the taxable year. 

11 ‘‘(iv) ADJUSTMENT FOR DETERMINA12 TIONS.—If there is an increase in the ex13 cess described in subparagraph (A) for the 

14 taxable year which results from a deter15 mination (as defined in section 860(e)), 

16 the company may, subject to the limita17 tions of this subparagraph, increase the 

18 amount of capital gain dividends reported 

19 under clause (i). 

20 ‘‘(v) SPECIAL RULE FOR LOSSES LATE

21 IN THE CALENDAR YEAR.—For special rule 

22 for certain losses after October 31, see 

23 paragraph (8).’’. 

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1 (2) CONFORMING AMENDMENT.—Subparagraph 

2 (B) of section 860(f)(2) is amended by inserting ‘‘or 

3 reported (as the case may be)’’ after ‘‘designated’’. 

4 (b) EXEMPT-INTEREST DIVIDENDS.—Subparagraph 

5 (A) of section 852(b)(5) is amended to read as follows: 

6 ‘‘(A) DEFINITION OF EXEMPT-INTEREST

7 DIVIDEND.— 

8 ‘‘(i) IN GENERAL.—An exempt-inter9 est dividend is the excess of— 

10 ‘‘(I) the portion of any dividend 

11 (other than a capital gain dividend) 

12 paid by a regulated investment com13 pany and reported by the company as 

14 an exempt-interest dividend in a writ15 ten statement furnished to its share16 holders (hereafter in this subpara17 graph referred to as the ‘reported ex18 empt-interest dividend amount’), over 

19 ‘‘(II) the excess reported amount 

20 (if any) which is allocable to the re21 ported exempt-interest dividend 

22 amount. 

23 ‘‘(ii) ALLOCATION OF EXCESS RE24 PORTED AMOUNT.— 

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1 ‘‘(I) IN GENERAL.—Except as 

2 provided in subclause (II), the excess 

3 reported amount (if any) which is al4 locable to the reported exempt-interest 

5 dividend amount is that portion of the 

6 excess reported amount which bears 

7 the same ratio to the excess reported 

8 amount as the reported exempt-inter9 est dividend amount bears to the ag10 gregate reported amount. 

11 ‘‘(II) SPECIAL RULE FOR NON12 CALENDAR YEAR TAXPAYERS.—In the 

13 case of any taxable year which does 

14 not begin and end in the same cal15 endar year, if the post-December re16 ported amount equals or exceeds the 

17 excess reported amount for such tax18 able year, subclause (I) shall be ap19 plied by substituting ‘post-December 

20 reported amount’ for ‘aggregate re21 ported amount’ and no excess re22 ported amount shall be allocated to 

23 any dividend paid on or before De24 cember 31 of such taxable year. 

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1 ‘‘(iii) DEFINITIONS.—For purposes of 

2 this subparagraph— 

3 ‘‘(I) EXCESS REPORTED

4 AMOUNT.—The term ‘excess reported 

5 amount’ means the excess of the ag6 gregate reported amount over the ex7 empt interest of the company for the 

8 taxable year. 

9 ‘‘(II) AGGREGATE REPORTED

10 AMOUNT.—The term ‘aggregate re11 ported amount’ means the aggregate 

12 amount of dividends reported by the 

13 company under clause (i)(I) as ex14 empt-interest dividends for the taxable 

15 year (including exempt-interest divi16 dends paid after the close of the tax17 able year described in section 855). 

18 ‘‘(III) POST-DECEMBER RE19 PORTED AMOUNT.—The term ‘post20 December reported amount’ means 

21 the aggregate reported amount deter22 mined by taking into account only 

23 dividends paid after December 31 of 

24 the taxable year. 

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1 ‘‘(IV) EXEMPT INTEREST.—The 

2 term ‘exempt interest’ means, with re3 spect to any regulated investment 

4 company, the excess of the amount of 

5 interest excludable from gross income 

6 under section 103(a) over the 

7 amounts disallowed as deductions 

8 under sections 265 and 171(a)(2).’’. 

9 (c) FOREIGN TAX CREDITS.—Subsection (c) of sec10 tion 853 is amended by striking ‘‘so designated by the 

11 company in a written notice mailed to its shareholders not 

12 later than 60 days after the close of the taxable year’’ and 

13 inserting ‘‘so reported by the company in a written state14 ment furnished to its shareholders’’. 

15 (d) CREDITS FOR TAX CREDIT BONDS.—Subsection 

16 (c) of section 853A is amended by striking ‘‘so designated 

17 by the regulated investment company in a written notice 

18 mailed to its shareholders not later than 60 days after 

19 the close of its taxable year’’ and inserting ‘‘so reported 

20 by the regulated investment company in a written state21 ment furnished to its shareholders’’. 

22 (e) DIVIDEND RECEIVED DEDUCTION, ETC.— 

23 (1) IN GENERAL.—Paragraph (1) of section 

24 854(b) is amended— 

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1 (A) by striking ‘‘designated under this sub2 paragraph by the regulated investment com3 pany’’ in subparagraph (A) and inserting ‘‘re4 ported by the regulated investment company as 

5 eligible for such deduction in a written state6 ment furnished to its shareholders’’, 

7 (B) by striking ‘‘designated by the regu8 lated investment company’’ in subparagraph 

9 (B)(i) and inserting ‘‘reported by the regulated 

10 investment company as qualified dividend in11 come in a written statement furnished to its 

12 shareholders’’, 

13 (C) by striking ‘‘designated’’ in subpara14 graph (C)(i) and inserting ‘‘reported’’, and 

15 (D) by striking ‘‘designated’’ in subpara16 graph (C)(ii) and inserting ‘‘reported’’. 

17 (2) CONFORMING AMENDMENTS.—Subsection 

18 (b) of section 854 is amended by striking paragraph 

19 (2) and by redesignating paragraphs (3), (4), and 

20 (5), as paragraphs (2), (3), and (4), respectively. 

21 (f) DIVIDENDS PAID TO CERTAIN FOREIGN PER22 SONS.— 

23 (1) INTEREST-RELATED DIVIDENDS.—Subpara24 graph (C) of section 871(k)(1) is amended to read 

25 as follows: 

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1 ‘‘(C) INTEREST-RELATED DIVIDEND.— 

2 ‘‘(i) IN GENERAL.—For purposes of 

3 this paragraph, the term ‘interest related 

4 dividend’ means the excess of— 

5 ‘‘(I) the portion of any dividend 

6 which is reported by the company as 

7 an interest related dividend in a writ8 ten statement furnished to its share9 holders (hereafter in this subpara10 graph referred to as the ‘reported in11 terest related dividend amount’), over 

12 ‘‘(II) the excess reported amount 

13 (if any) which is allocable to the re14 ported interest related dividend 

15 amount. 

16 ‘‘(ii) ALLOCATION OF EXCESS RE17 PORTED AMOUNT.— 

18 ‘‘(I) IN GENERAL.—Except as 

19 provided in subclause (II), the excess 

20 reported amount (if any) which is al21 locable to the reported interest related 

22 dividend amount is that portion of the 

23 excess reported amount which bears 

24 the same ratio to the excess reported 

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1 lated dividend amount bears to the 

2 aggregate reported amount. 

3 ‘‘(II) SPECIAL RULE FOR NON4 CALENDAR YEAR TAXPAYERS.—In the 

5 case of any taxable year which does 

6 not begin and end in the same cal7 endar year, if the post-December re8 ported amount equals or exceeds the 

9 excess reported amount for such tax10 able year, subclause (I) shall be ap11 plied by substituting ‘post-December 

12 reported amount’ for ‘aggregate re13 ported amount’ and no excess re14 ported amount shall be allocated to 

15 any dividend paid on or before De16 cember 31 of such taxable year. 

17 ‘‘(iii) DEFINITIONS.—For purposes of 

18 this subparagraph— 

19 ‘‘(I) EXCESS REPORTED

20 AMOUNT.—The term ‘excess reported 

21 amount’ means the excess of the ag22 gregate reported amount over the 

23 qualified net interest income of the 

24 company for the taxable year. 

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1 ‘‘(II) AGGREGATE REPORTED

2 AMOUNT.—The term ‘aggregate re3 ported amount’ means the aggregate 

4 amount of dividends reported by the 

5 company under clause (i)(I) as inter6 est related dividends for the taxable 

7 year (including interest related divi8 dends paid after the close of the tax9 able year described in section 855). 

10 ‘‘(III) POST-DECEMBER RE11 PORTED AMOUNT.—The term ‘post12 December reported amount’ means 

13 the aggregate reported amount deter14 mined by taking into account only 

15 dividends paid after December 31 of 

16 the taxable year. 

17 ‘‘(iv) TERMINATION.—The term ‘in18 terest related dividend’ shall not include 

19 any dividend with respect to any taxable 

20 year of the company beginning after De21 cember 31, 2009.’’. 

22 (2) SHORT-TERM CAPITAL GAIN DIVIDENDS.— 

23 Subparagraph (C) of section 871(k)(2) is amended 

24 to read as follows: 

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1 ‘‘(C) SHORT-TERM CAPITAL GAIN DIVI2 DEND.— 

3 ‘‘(i) IN GENERAL.—For purposes of 

4 this paragraph, the term ‘short-term cap5 ital gain dividend’ means the excess of— 

6 ‘‘(I) the portion of any dividend 

7 which is reported by the company as 

8 a short-term capital gain dividend in a 

9 written statement furnished to its 

10 shareholders (hereafter in this sub11 paragraph referred to as the ‘reported 

12 short-term capital gain dividend 

13 amount’), over 

14 ‘‘(II) the excess reported amount 

15 (if any) which is allocable to the re16 ported short-term capital gain divi17 dend amount. 

18 ‘‘(ii) ALLOCATION OF EXCESS RE19 PORTED AMOUNT.— 

20 ‘‘(I) IN GENERAL.—Except as 

21 provided in subclause (II), the excess 

22 reported amount (if any) which is al23 locable to the reported short-term cap24 ital gain dividend amount is that por25 tion of the excess reported amount 

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1 which bears the same ratio to the ex2 cess reported amount as the reported 

3 short-term capital gain dividend 

4 amount bears to the aggregate re5 ported amount. 

6 ‘‘(II) SPECIAL RULE FOR NON7 CALENDAR YEAR TAXPAYERS.—In the 

8 case of any taxable year which does 

9 not begin and end in the same cal10 endar year, if the post-December re11 ported amount equals or exceeds the 

12 excess reported amount for such tax13 able year, subclause (I) shall be ap14 plied by substituting ‘post-December 

15 reported amount’ for ‘aggregate re16 ported amount’ and no excess re17 ported amount shall be allocated to 

18 any dividend paid on or before De19 cember 31 of such taxable year. 

20 ‘‘(iii) DEFINITIONS.—For purposes of 

21 this subparagraph— 

22 ‘‘(I) EXCESS REPORTED

23 AMOUNT.—The term ‘excess reported 

24 amount’ means the excess of the ag25 gregate reported amount over the 

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1 qualified short-term gain of the com2 pany for the taxable year. 

3 ‘‘(II) AGGREGATE REPORTED

4 AMOUNT.—The term ‘aggregate re5 ported amount’ means the aggregate 

6 amount of dividends reported by the 

7 company under clause (i)(I) as short8 term capital gain dividends for the 

9 taxable year (including short-term 

10 capital gain dividends paid after the 

11 close of the taxable year described in 

12 section 855). 

13 ‘‘(III) POST-DECEMBER RE14 PORTED AMOUNT.—The term ‘post15 December reported amount’ means 

16 the aggregate reported amount deter17 mined by taking into account only 

18 dividends paid after December 31 of 

19 the taxable year. 

20 ‘‘(iv) TERMINATION.—The term 

21 ‘short-term capital gain dividend’ shall not 

22 include any dividend with respect to any 

23 taxable year of the company beginning 

24 after December 31, 2009.’’. 

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1 (g) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to distributions in taxable years 

3 beginning after the date of the enactment of this Act. 

4 (h) APPLICATION OF JGTRRA SUNSET.—Section 

5 303 of the Jobs and Growth Tax Relief Reconciliation Act 

6 of 2003 shall apply to the amendments made by subpara7 graphs (B) and (D) of subsection (e)(1) to the same extent 

8 and in the same manner as section 303 of such Act applies 

9 to the amendments made by section 302 of such Act. 

10 SEC. 302. EARNINGS AND PROFITS OF REGULATED INVEST11 MENT COMPANIES. 

12 (a) IN GENERAL.—Paragraph (1) of section 852(c) 

13 is amended by inserting ‘‘(other than by reason of section 

14 265 or 171(a)(2))’’ after ‘‘not allowable as a deduction’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 the date of the enactment of this Act. 

18 SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS 

19 AND FOREIGN TAX CREDITS IN FUND OF 

20 FUNDS STRUCTURE. 

21 (a) IN GENERAL.—Section 852 is amended by adding 

22 at the end the following new subsection: 

23 ‘‘(g) SPECIAL RULES FOR FUND OF FUNDS.— 

24 ‘‘(1) IN GENERAL.—In the case of a qualified 

25 fund of funds— 

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1 ‘‘(A) such fund shall be qualified to pay 

2 exempt-interest dividends to its shareholders 

3 without regard to whether such fund satisfies 

4 the requirements of the first sentence of sub5 section (b)(5), and 

6 ‘‘(B) such fund may elect the application 

7 of section 853 (relating to foreign tax credit al8 lowed to shareholders) without regard to the re9 quirement of subsection (a)(1) thereof. 

10 ‘‘(2) QUALIFIED FUND OF FUNDS.—For pur11 poses of this subsection, the term ‘qualified fund of 

12 funds’ means a regulated investment company if (at 

13 the close of each quarter of the taxable year) at least 

14 95 percent of the value of its total assets is rep15 resented by— 

16 ‘‘(A) cash and cash items (including receiv17 ables), and 

18 ‘‘(B) interests in other regulated invest19 ment companies.’’. 

20 (b) EFFECTIVE DATE.—The amendment made by 

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 

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1 SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVI2 DENDS OF REGULATED INVESTMENT COMPA3 NIES. 

4 (a) DEADLINE FOR DECLARATION OF DIVIDEND.— 

5 Paragraph (1) of section 855(a) is amended to read as 

6 follows: 

7 ‘‘(1) declares a dividend before the later of— 

8 ‘‘(A) the 15th day of the 9th month fol9 lowing the close the taxable year, or 

10 ‘‘(B) in the case of an extension of time 

11 for filing the company’s return for the taxable 

12 year, the due date for filing such return taking 

13 into account such extension, and’’. 

14 (b) DEADLINE FOR DISTRIBUTION OF DIVIDEND.— 

15 Paragraph (2) of section 855(a) is amended by striking 

16 ‘‘the first regular dividend payment’’ and inserting ‘‘the 

17 first dividend payment of the same type of dividend’’. 

18 (c) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to distributions in taxable years 

20 beginning after the date of the enactment of this Act. 

21 SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGU22 LATED INVESTMENT COMPANIES. 

23 (a) IN GENERAL.—Subsection (b) of section 316 is 

24 amended by adding at the end the following new para25 graph: 

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1 ‘‘(4) CERTAIN DISTRIBUTIONS BY REGULATED

2 INVESTMENT COMPANIES IN EXCESS OF EARNINGS

3 AND PROFITS.—In the case of a regulated invest4 ment company that has a taxable year other than a 

5 calendar year, if the distributions by the company 

6 with respect to any class of stock of such company 

7 for the taxable year (including distributions of prop8 erty after the close of the taxable year described in 

9 section 855) exceed the company’s current and accu10 mulated earnings and profits which may be used for 

11 the payment of dividends on such class of stock, the 

12 company’s current earnings and profits shall, for 

13 purposes of subsection (a), be allocated first to dis14 tributions with respect to such class of stock made 

15 during the portion of the taxable year which pre16 cedes January 1.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to distributions made in taxable 

19 years beginning after the date of the enactment of this 

20 Act. 

21 SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A 

22 REGULATED INVESTMENT COMPANY. 

23 (a) REDEMPTIONS TREATED AS EXCHANGES.— 

24 (1) IN GENERAL.—Subsection (b) of section 

25 302 is amended by redesignating paragraph (5) as 

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1 paragraph (6) and by inserting after paragraph (4) 

2 the following new paragraph: 

3 ‘‘(5) REDEMPTIONS BY CERTAIN REGULATED

4 INVESTMENT COMPANIES.—Except to the extent 

5 provided in regulations prescribed by the Secretary, 

6 subsection (a) shall apply to any distribution in re7 demption of stock of a publicly offered regulated in8 vestment company (within the meaning of section 

9 67(c)(2)(B)) if— 

10 ‘‘(A) such redemption is upon the demand 

11 of the stockholder, and 

12 ‘‘(B) such company issues only stock which 

13 is redeemable upon the demand of the stock14 holder.’’. 

15 (2) CONFORMING AMENDMENT.—Subsection (a) 

16 of section 302 is amended by striking ‘‘or (4)’’ and 

17 inserting ‘‘(4), or (5)’’. 

18 (b) LOSSES ON REDEMPTIONS NOT DISALLOWED

19 FOR FUND-OF-FUNDS REGULATED INVESTMENT COMPA20 NIES.—Paragraph (3) of section 267(f) is amended by 

21 adding at the end the following new subparagraph: 

22 ‘‘(D) REDEMPTIONS BY FUND-OF-FUNDS

23 REGULATED INVESTMENT COMPANIES.—Except 

24 to the extent provided in regulations prescribed 

25 by the Secretary, subsection (a)(1) shall not 

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1 apply to any distribution in redemption of stock 

2 of a regulated investment company if— 

3 ‘‘(i) such company issues only stock 

4 which is redeemable upon the demand of 

5 the stockholder, and 

6 ‘‘(ii) such redemption is upon the de7 mand of another regulated investment 

8 company.’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to distributions after the date of 

11 the enactment of this Act. 

12 SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR 

13 PUBLICLY OFFERED REGULATED INVEST14 MENT COMPANIES. 

15 (a) IN GENERAL.—Subsection (c) of section 562 is 

16 amended by striking ‘‘The amount’’ and inserting ‘‘Except 

17 in the case of a publicly offered regulated investment com18 pany (as defined in section 67(c)(2)(B)), the amount’’. 

19 (b) CONFORMING AMENDMENT.—Section 562(c) is 

20 amended by inserting ‘‘(other than a publicly offered regu21 lated investment company (as so defined))’’ after ‘‘regu22 lated investment company’’ in the second sentence thereof. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to distributions in taxable years 

25 beginning after the date of the enactment of this Act. 

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1 SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR 

2 LOSSES OF REGULATED INVESTMENT COM3 PANIES. 

4 (a) IN GENERAL.—Paragraph (8) of section 852(b) 

5 is amended to read as follows: 

6 ‘‘(8) ELECTIVE DEFERRAL OF CERTAIN LATE7 YEAR LOSSES.— 

8 ‘‘(A) IN GENERAL.—Except as otherwise 

9 provided by the Secretary, a regulated invest10 ment company may elect for any taxable year to 

11 compute its taxable income, net capital gain, 

12 and earnings and profits without regard to any 

13 portion of any qualified late-year loss, and any 

14 such portion shall be treated as arising on the 

15 first day of the following taxable year for pur16 poses of such computations. 

17 ‘‘(B) QUALIFIED LATE-YEAR LOSS.—For 

18 purposes of this paragraph, the term ‘qualified 

19 late-year loss’ means— 

20 ‘‘(i) any post-October capital loss, and 

21 ‘‘(ii) any late-year ordinary loss. 

22 ‘‘(C) POST-OCTOBER CAPITAL LOSS.—For 

23 purposes of this paragraph, the term ‘post-Oc24 tober capital loss’ means the greatest of— 

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1 ‘‘(i) the net capital loss attributable to 

2 the portion of the taxable year after Octo3 ber 31, 

4 ‘‘(ii) the net long-term capital loss at5 tributable to such portion of the taxable 

6 year, or 

7 ‘‘(iii) the net short-term capital loss 

8 attributable to such portion of the taxable 

9 year. 

10 ‘‘(D) LATE-YEAR ORDINARY LOSS.—For 

11 purposes of this paragraph, the term ‘late-year 

12 ordinary loss’ means the excess (if any) of— 

13 ‘‘(i) the sum of— 

14 ‘‘(I) the ordinary losses attrib15 utable to the portion of the taxable 

16 year after December 31, plus 

17 ‘‘(II) the specified losses (as de18 fined in section 4982(e)(5)(B)(ii)) at19 tributable to the portion of the taxable 

20 year after October 31 (and before 

21 January 1), over 

22 ‘‘(ii) the sum of— 

23 ‘‘(I) the ordinary income attrib24 utable to the portion of the taxable 

25 year after December 31, plus 

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1 ‘‘(II) the specified gains (as de2 fined in section 4982(e)(5)(B)(ii)) at3 tributable to the portion of the taxable 

4 year after October 31 (and before 

5 January 1). 

6 ‘‘(E) SPECIAL RULE FOR COMPANIES DE7 TERMINING REQUIRED CAPITAL GAIN DISTRIBU8 TIONS ON TAXABLE YEAR BASIS.—In the case 

9 of a company to which an election under section 

10 4982(e)(4) applies— 

11 ‘‘(i) if such company’s taxable year 

12 ends with the month of November, sub13 paragraphs (C)(i), (D)(i)(II), and 

14 (D)(ii)(II) shall each be applied by sub15 stituting ‘November 30’ for ‘October 31’, 

16 and 

17 ‘‘(ii) if such company’s taxable year 

18 ends with the month of December, sub19 paragraph (A) shall not apply.’’. 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) Subsection (b) of section 852 is amended by 

22 striking paragraph (10). 

23 (2) Subsection (c) of section 852 is amended by 

24 striking paragraph (2) and by redesignating para25 graph (3) as paragraph (2). 

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1 (3) Subparagraph (D) of section 871(k)(2) is 

2 amended by striking the last two sentences and in3 serting the following: ‘‘For purposes of this subpara4 graph, the net short-term capital gain of the regu5 lated investment company shall be computed by 

6 treating any short-term capital gain dividend includ7 ible in gross income with respect to stock of another 

8 regulated investment company as a short-term cap9 ital gain.’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 the date of the enactment of this Act. 

13 TITLE IV—MODIFICATIONS RE14 LATED TO EXCISE TAX APPLI15 CABLE TO REGULATED IN16 VESTMENT COMPANIES 

17 SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGU18 LATED INVESTMENT COMPANIES OWNED BY 

19 TAX EXEMPT ENTITIES. 

20 (a) IN GENERAL.—Subsection (f) of section 4982 is 

21 amended— 

22 (1) by striking ‘‘either’’ in the matter preceding 

23 paragraph (1), 

24 (2) by striking ‘‘or’’ at the end of paragraph 

25 (1), 

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1 (3) by striking the period at the end of para2 graph (2) and inserting ‘‘or’’, and 

3 (4) by inserting after paragraph (2) the fol4 lowing new paragraph: 

5 ‘‘(3) any other tax-exempt entity whose owner6 ship of beneficial interests in the company would not 

7 preclude the application of section 817(h)(4).’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to calendar years beginning after 

10 the date of the enactment of this Act. 

11 SEC. 402. DEFERRAL OF CERTAIN GAINS AND LOSSES OF 

12 REGULATED INVESTMENT COMPANIES FOR 

13 EXCISE TAX PURPOSES. 

14 (a) IN GENERAL.—Subsection (e) of section 4982 is 

15 amended by striking paragraphs (5) and (6) and inserting 

16 the following new paragraphs: 

17 ‘‘(5) TREATMENT OF SPECIFIED GAINS AND

18 LOSSES AFTER OCTOBER 31 OF CALENDAR YEAR.— 

19 ‘‘(A) IN GENERAL.—Any specified gain or 

20 specified loss which (but for this paragraph) 

21 would be properly taken into account for the 

22 portion of the calendar year after October 31 

23 shall be treated as arising on the 1st day of the 

24 following calendar year. 

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1 ‘‘(B) SPECIFIED GAINS AND LOSSES.—For 

2 purposes of this paragraph— 

3 ‘‘(i) SPECIFIED GAIN.—The term 

4 ‘specified gain’ means ordinary gain from 

5 the sale, exchange, or other disposition of 

6 property (including the termination of a 

7 position with respect to such property). 

8 Such term shall include any foreign cur9 rency gain attributable to a section 988 

10 transaction (within the meaning of section 

11 988) and any amount includible in gross 

12 income under section 1296(a)(1). 

13 ‘‘(ii) SPECIFIED LOSS.—The term 

14 ‘specified loss’ means ordinary loss from 

15 the sale, exchange, or other disposition of 

16 property (including the termination of a 

17 position with respect to such property). 

18 Such term shall include any foreign cur19 rency loss attributable to a section 988 

20 transaction (within the meaning of section 

21 988) and any amount allowable as a de22 duction under section 1296(a)(2). 

23 ‘‘(C) SPECIAL RULE FOR COMPANIES

24 ELECTING TO USE THE TAXABLE YEAR.—In the 

25 case of any company making an election under 

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1 paragraph (4), subparagraph (A) shall be ap2 plied by substituting the last day of the com3 pany’s taxable year for October 31. 

4 ‘‘(6) TREATMENT OF MARK TO MARKET

5 GAIN.— 

6 ‘‘(A) IN GENERAL.—For purposes of deter7 mining a regulated investment company’s ordi8 nary income, notwithstanding paragraph (1)(C), 

9 each specified mark to market provision shall be 

10 applied as if such company’s taxable year ended 

11 on October 31. In the case of a company mak12 ing an election under paragraph (4), the pre13 ceding sentence shall be applied by substituting 

14 the last day of the company’s taxable year for 

15 October 31. 

16 ‘‘(B) SPECIFIED MARK TO MARKET PROVI17 SION.—For purposes of this paragraph, the 

18 term ‘specified mark to market provision’ 

19 means sections 1256 and 1296 and any other 

20 provision of this title which treats property as 

21 disposed of on the last day of the taxable year. 

22 ‘‘(7) ELECTIVE DEFERRAL OF CERTAIN ORDI23 NARY LOSSES.—Except as provided in regulations 

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1 lated investment company which has a taxable year 

2 other than the calendar year— 

3 ‘‘(A) such company may elect to determine 

4 its ordinary income for the calendar year with5 out regard to any net ordinary loss (determined 

6 without regard to specified gains and losses 

7 taken into account under paragraph (5)) which 

8 is attributable to the portion of such calendar 

9 year which is after the beginning of the taxable 

10 year which begins in such calendar year, and 

11 ‘‘(B) any amount of net ordinary loss not 

12 taken into account for a calendar year by rea13 son of subparagraph (A) shall be treated as 

14 arising on the 1st day of the following calendar 

15 year.’’. 

16 (b) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to calendar years beginning after 

18 the date of the enactment of this Act. 

19 SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PUR20 POSES DETERMINED ON BASIS OF TAXES 

21 PAID BY REGULATED INVESTMENT COM22 PANY. 

23 (a) IN GENERAL.—Subsection (c) of section 4982 is 

24 amended by adding at the end the following new para25 graph: 

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1 ‘‘(4) SPECIAL RULE FOR ESTIMATED TAX PAY2 MENTS.— 

3 ‘‘(A) IN GENERAL.—In the case of a regu4 lated investment company which elects the ap5 plication of this paragraph for any calendar 

6 year— 

7 ‘‘(i) the distributed amount with re8 spect to such company for such calendar 

9 year shall be increased by the amount on 

10 which qualified estimated tax payments are 

11 made by such company during such cal12 endar year, and 

13 ‘‘(ii) the distributed amount with re14 spect to such company for the following 

15 calendar year shall be reduced by the 

16 amount of such increase. 

17 ‘‘(B) QUALIFIED ESTIMATED TAX PAY18 MENTS.—For purposes of this paragraph, the 

19 term ‘qualified estimated tax payments’ means, 

20 with respect to any calendar year, payments of 

21 estimated tax of a tax described in paragraph 

22 (1)(B) for any taxable year which begins (but 

23 does not end) in such calendar year.’’. 

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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to calendar years beginning after 

3 the date of the enactment of this Act. 

4 TITLE V—OTHER PROVISIONS 

5 SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RE6 SPECT TO LIABILITY FOR TAX OF REGU7 LATED INVESTMENT COMPANIES. 

8 (a) IN GENERAL.—Part I of subchapter B of chapter 

9 68 is amended by striking section 6697 (and by striking 

10 the item relating to such section in the table of sections 

11 of such part). 

12 (b) CONFORMING AMENDMENT.—Section 860 is 

13 amended by striking subsection (j). 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 the date of the enactment of this Act. 

17 SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL 

18 RULE FOR REGULATED INVESTMENT COMPA19 NIES. 

20 (a) IN GENERAL.—Subparagraph (C) of section 

21 852(f)(1) is amended by striking ‘‘subsequently acquires’’ 

22 and inserting ‘‘acquires, during the period beginning on 

23 the date of the disposition referred to in subparagraph (B) 

24 and ending on January 31 of the calendar year following 

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1 the calendar year that includes the date of such disposi2 tion,’’. 

3 (b) EFFECTIVE DATE.—The amendment made by 

4 this section shall apply to charges incurred in taxable 

5 years beginning after the date of the enactment of this 

6 Act. 

Æ 

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