H. R. 4337 

One Hundred Eleventh Congress 

of the 

United States of America 

AT THE SECOND SESSION 

Begun and held at the City of Washington on Tuesday, 

the fifth day of January, two thousand and ten 

An Act 

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

to regulated investment companies, and for other purposes. 

Be it enacted by the Senate and House of Representatives of 

the United States of America in Congress assembled, 

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. 
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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 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 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) EFFECTIVE DATE.— 

(1) IN GENERAL.—Except as provided in paragraph (2), the 

amendments made by this section shall apply to net capital 
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losses for taxable years beginning after the date of the enactment of this Act. 

(2) COORDINATION RULES.—Subparagraph (B) 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 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) 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— 
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‘‘(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) 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 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 
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‘‘(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) 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) 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 
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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 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 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. 
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‘‘(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 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 
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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 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.— 
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(1) INTEREST-RELATED DIVIDENDS.—Subparagraph (C) of 

section 871(k)(1) is 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 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 
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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) is amended by striking all that precedes 

‘‘any taxable year of the company beginning’’ and inserting 

the following: 

‘‘(C) 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 ‘shortterm 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 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 DIVI- DEND 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. 
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‘‘(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 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) 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 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. 
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‘‘(ii) COORDINATION WITH TREATMENT OF NET CAP- ITAL 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 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) 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) 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’’. 
H. R. 4337—13 

(c) SHORT-TERM CAPITAL GAIN.—Subsection (a) 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) 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) 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) LOSSES ON REDEMPTIONS NOT DISALLOWED FOR FUND-OFFUNDS 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— 
H. R. 4337—14 

‘‘(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) 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) 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— 
H. R. 4337—15 

‘‘(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 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) 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 taxexempt interest and distributes such dividends on a 

monthly or more frequent basis. 
H. R. 4337—16 

‘‘(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), is amended by inserting 

‘‘(other than a company described in clause (i))’’ after ‘‘regulated 

investment company’’. 

(c) 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) 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 
H. R. 4337—17 

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) 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 is amended 

by adding at the end the following new paragraph: 

‘‘(4) SPECIAL RULE FOR ESTIMATED TAX PAYMENTS.— 
H. R. 4337—18 

‘‘(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) 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) is 

amended by striking ‘‘98 percent’’ and inserting ‘‘98.2 percent’’. 

(b) 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) 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,’’. 
H. R. 4337—19 

(b) 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. 

Speaker of the House of Representatives. 

Vice President of the United States and

President of the Senate.