111TH CONGRESS 

2D SESSION H. R. 4337 

AN ACT 

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, 
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1 SECTION 1. SHORT TITLE, ETC. 

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

3 ‘‘Regulated Investment Company Modernization Act of 

4 2010’’. 

5 (b) REFERENCE.—Except as otherwise expressly pro6 vided, whenever in this Act an amendment or repeal is 

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

8 section or other provision, the reference shall be consid9 ered to be made to a section or other provision of the In10 ternal Revenue Code of 1986. 

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

12 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. 
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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. 

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 VI—PAYGO COMPLIANCE 

Sec. 601. Paygo compliance. 

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

2 such loss, 

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

4 capital loss over the net long-term capital 

5 gain for such year shall be a short-term 

6 capital loss arising on the first day of the 

7 next taxable year, and 

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

9 capital loss over the net short-term capital 

10 gain for such year shall be a long-term 

11 capital loss arising on the first day of the 

12 next taxable year. 

13 ‘‘(B) COORDINATION WITH GENERAL

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

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

16 a regulated investment company— 

17 ‘‘(i) LOSSES TO WHICH THIS PARA18 GRAPH APPLIES.—Clauses (ii) and (iii) of 

19 subparagraph (A) shall be applied without 

20 regard to any amount treated as a short21 term capital loss under paragraph (1). 

22 ‘‘(ii) LOSSES TO WHICH GENERAL

23 RULE APPLIES.—Paragraph (1) shall be 

24 applied by substituting ‘net capital loss for 

25 the loss year or any taxable year thereafter 
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1 (other than a net capital loss to which 

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

3 loss for the loss year or any taxable year 

4 thereafter’.’’. 

5 (b) CONFORMING AMENDMENTS.— 

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

7 amended to read as follows: 

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

9 10 taxable years succeeding the loss year, but 

10 only to the extent such loss is attributable to a 

11 foreign expropriation loss,’’. 

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

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

14 1212(a)(1)’’. 

15 (c) EFFECTIVE DATE.— 

16 (1) IN GENERAL.—Except as provided in para17 graph (2), the amendments made by this section 

18 shall apply to net capital losses for taxable years be19 ginning after the date of the enactment of this Act. 

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

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

22 of 1986, as added by this section, shall apply to tax23 able years beginning after the date of the enactment 

24 of this Act. 
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1 TITLE II—MODIFICATION OF 

2 GROSS INCOME AND ASSET 

3 TESTS OF REGULATED IN4 VESTMENT COMPANIES 

5 SEC. 201. INCOME FROM COMMODITIES COUNTED TOWARD 

6 GROSS INCOME TEST OF REGULATED IN7 VESTMENT COMPANIES. 

8 (a) GROSS INCOME TEST.—Subparagraph (A) of sec9 tion 851(b)(2) is amended— 

10 (1) by striking ‘‘foreign currencies’’ and insert11 ing ‘‘commodities’’, and 

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

13 ‘‘or commodities’’. 

14 (b) REPEAL OF REGULATORY AUTHORITY TO EX15 CLUDE CERTAIN FOREIGN CURRENCY GAINS FROM

16 QUALIFYING INCOME.—Subsection (b) of section 851 is 

17 amended by striking ‘‘For purposes of paragraph (2), the 

18 Secretary may by regulation exclude from qualifying in19 come foreign currency gains which are not directly related 

20 to the company’s principal business of investing in stock 

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

22 or securities).’’ in the flush matter after paragraph (3). 

23 (c) CONFORMING AMENDMENTS.— 

24 (1) Subsection (h) of section 851 is amended by 

25 inserting ‘‘(determined by substituting ‘foreign cur-
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1 rencies’ for ‘commodities’ therein)’’ after ‘‘subsection 

2 (b)(2)(A)’’. 

3 (2) Paragraph (4) of section 7704(d) is amend4 ed by inserting ‘‘(determined by substituting ‘foreign 

5 currencies’ for ‘commodities’ therein)’’ after ‘‘section 

6 851(b)(2)(A)’’. 

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

8 this section shall apply to taxable years beginning after 

9 the date of the enactment of this Act. 

10 SEC. 202. SAVINGS PROVISIONS FOR FAILURES OF REGU11 LATED INVESTMENT COMPANIES TO SATISFY 

12 GROSS INCOME AND ASSET TESTS. 

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

14 amended— 

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

16 and inserting the following: 

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

18 meets’’, and 

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

20 paragraph: 

21 ‘‘(2) SPECIAL RULES REGARDING FAILURE TO

22 SATISFY REQUIREMENTS.—If paragraph (1) does 

23 not preserve a corporation’s status as a regulated in24 vestment company for any particular quarter— 
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1 ‘‘(A) IN GENERAL.—A corporation that 

2 fails to meet the requirements of subsection 

3 (b)(3) (other than a failure described in sub4 paragraph (B)(i)) for such quarter shall never5 theless be considered to have satisfied the re6 quirements of such subsection for such quarter 

7 if— 

8 ‘‘(i) following the corporation’s identi9 fication of the failure to satisfy the re10 quirements of such subsection for such 

11 quarter, a description of each asset that 

12 causes the corporation to fail to satisfy the 

13 requirements of such subsection at the 

14 close of such quarter is set forth in a 

15 schedule for such quarter filed in the man16 ner provided by the Secretary, 

17 ‘‘(ii) the failure to meet the require18 ments of such subsection for such quarter 

19 is due to reasonable cause and not due to 

20 willful neglect, and 

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

22 the assets set forth on the schedule speci23 fied in clause (i) within 6 months after the 

24 last day of the quarter in which the cor25 poration’s identification of the failure to 
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1 satisfy the requirements of such subsection 

2 occurred or such other time period pre3 scribed by the Secretary and in the manner 

4 prescribed by the Secretary, or 

5 ‘‘(II) the requirements of such sub6 section are otherwise met within the time 

7 period specified in subclause (I). 

8 ‘‘(B) RULE FOR CERTAIN DE MINIMIS

9 FAILURES.—A corporation that fails to meet 

10 the requirements of subsection (b)(3) for such 

11 quarter shall nevertheless be considered to have 

12 satisfied the requirements of such subsection 

13 for such quarter if— 

14 ‘‘(i) such failure is due to the owner15 ship of assets the total value of which does 

16 not exceed the lesser of— 

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

18 of the corporation’s assets at the end 

19 of the quarter for which such meas20 urement is done, or 

21 ‘‘(II) $10,000,000, and 

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

23 identification of such failure, disposes of 

24 assets in order to meet the requirements of 

25 such subsection within 6 months after the 
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1 last day of the quarter in which the cor2 poration’s identification of the failure to 

3 satisfy the requirements of such subsection 

4 occurred or such other time period pre5 scribed by the Secretary and in the manner 

6 prescribed by the Secretary, or 

7 ‘‘(II) the requirements of such sub8 section are otherwise met within the time 

9 period specified in subclause (I). 

10 ‘‘(C) TAX.— 

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

12 (A) applies to a corporation for any quar13 ter, there is hereby imposed on such cor14 poration a tax in an amount equal to the 

15 greater of— 

16 ‘‘(I) $50,000, or 

17 ‘‘(II) the amount determined 

18 (pursuant to regulations promulgated 

19 by the Secretary) by multiplying the 

20 net income generated by the assets 

21 described in the schedule specified in 

22 subparagraph (A)(i) for the period 

23 specified in clause (ii) by the highest 

24 rate of tax specified in section 11. 
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1 ‘‘(ii) PERIOD.—For purposes of clause 

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

3 is the period beginning on the first date 

4 that the failure to satisfy the requirements 

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

6 the ownership of such assets and ending on 

7 the earlier of the date on which the cor8 poration disposes of such assets or the end 

9 of the first quarter when there is no longer 

10 a failure to satisfy such subsection. 

11 ‘‘(iii) ADMINISTRATIVE PROVISIONS.— 

12 For purposes of subtitle F, a tax imposed 

13 by this subparagraph shall be treated as 

14 an excise tax with respect to which the de15 ficiency procedures of such subtitle 

16 apply.’’. 

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

18 by adding at the end the following new subsection: 

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

20 ‘‘(1) DISCLOSURE REQUIREMENT.—A corpora21 tion that fails to meet the requirement of paragraph 

22 (2) of subsection (b) for any taxable year shall nev23 ertheless be considered to have satisfied the require24 ment of such paragraph for such taxable year if— 
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1 ‘‘(A) following the corporation’s identifica2 tion of the failure to meet such requirement for 

3 such taxable year, a description of each item of 

4 its gross income described in such paragraph is 

5 set forth in a schedule for such taxable year 

6 filed in the manner provided by the Secretary, 

7 and 

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

9 is due to reasonable cause and not due to will10 ful neglect. 

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

12 paragraph (1) applies to a regulated investment 

13 company for any taxable year, there is hereby im14 posed on such company a tax in an amount equal to 

15 the excess of— 

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

17 which is not derived from sources referred to in 

18 subsection (b)(2), over 

‘‘(B) 1 19 ⁄9 of the gross income of such com20 pany which is derived from such sources.’’. 

21 (c) DEDUCTION OF TAXES PAID FROM INVESTMENT

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

23 852(b) is amended by adding at the end the following new 

24 subparagraph: 
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1 ‘‘(G) There shall be deducted an amount 

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

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

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

5 this section shall apply to taxable years with respect to 

6 which the due date (determined with regard to any exten7 sions) of the return of tax for such taxable year is after 

8 the date of the enactment of this Act. 

9 TITLE III—MODIFICATION OF 

10 RULES RELATED TO DIVI11 DENDS AND OTHER DIS12 TRIBUTIONS 

13 SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION RE14 QUIREMENTS AND ALLOCATION RULES FOR 

15 REGULATED INVESTMENT COMPANIES. 

16 (a) CAPITAL GAIN DIVIDENDS.— 

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

18 852(b)(3) is amended to read as follows: 

19 ‘‘(C) DEFINITION OF CAPITAL GAIN DIVI20 DEND.—For purposes of this part— 

21 ‘‘(i) IN GENERAL.—Except as pro22 vided in clause (ii), a capital gain dividend 

23 is any dividend, or part thereof, which is 

24 reported by the company as a capital gain 
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1 dividend in written statements furnished to 

2 its shareholders. 

3 ‘‘(ii) EXCESS REPORTED AMOUNTS.— 

4 If the aggregate reported amount with re5 spect to the company for any taxable year 

6 exceeds the net capital gain of the com7 pany for such taxable year, a capital gain 

8 dividend is the excess of— 

9 ‘‘(I) the reported capital gain div10 idend amount, over 

11 ‘‘(II) the excess reported amount 

12 which is allocable to such reported 

13 capital gain dividend amount. 

14 ‘‘(iii) ALLOCATION OF EXCESS RE15 PORTED AMOUNT.— 

16 ‘‘(I) IN GENERAL.—Except as 

17 provided in subclause (II), the excess 

18 reported amount (if any) which is al19 locable to the reported capital gain 

20 dividend amount is that portion of the 

21 excess reported amount which bears 

22 the same ratio to the excess reported 

23 amount as the reported capital gain 

24 dividend amount bears to the aggre25 gate reported amount. 
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1 ‘‘(II) SPECIAL RULE FOR NON2 CALENDAR YEAR TAXPAYERS.—In the 

3 case of any taxable year which does 

4 not begin and end in the same cal5 endar year, if the post-December re6 ported amount equals or exceeds the 

7 excess reported amount for such tax8 able year, subclause (I) shall be ap9 plied by substituting ‘post-December 

10 reported amount’ for ‘aggregate re11 ported amount’ and no excess re12 ported amount shall be allocated to 

13 any dividend paid on or before De14 cember 31 of such taxable year. 

15 ‘‘(iv) DEFINITIONS.—For purposes of 

16 this subparagraph— 

17 ‘‘(I) REPORTED CAPITAL GAIN

18 DIVIDEND AMOUNT.—The term ‘re19 ported capital gain dividend amount’ 

20 means the amount reported to its 

21 shareholders under clause (i) as a 

22 capital gain dividend. 

23 ‘‘(II) EXCESS REPORTED

24 AMOUNT.—The term ‘excess reported 

25 amount’ means the excess of the ag-
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1 gregate reported amount over the net 

2 capital gain of the company for the 

3 taxable year. 

4 ‘‘(III) AGGREGATE REPORTED

5 AMOUNT.—The term ‘aggregate re6 ported amount’ means the aggregate 

7 amount of dividends reported by the 

8 company under clause (i) as capital 

9 gain dividends for the taxable year 

10 (including capital gain dividends paid 

11 after the close of the taxable year de12 scribed in section 855). 

13 ‘‘(IV) 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 ‘‘(v) ADJUSTMENT FOR DETERMINA21 TIONS.—If there is an increase in the ex22 cess described in subparagraph (A) for the 

23 taxable year which results from a deter24 mination (as defined in section 860(e)), 

25 the company may, subject to the limita-
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1 tions of this subparagraph, increase the 

2 amount of capital gain dividends reported 

3 under clause (i). 

4 ‘‘(vi) SPECIAL RULE FOR LOSSES

5 LATE IN THE CALENDAR YEAR.—For spe6 cial rule for certain losses after October 

7 31, see paragraph (8).’’. 

8 (2) CONFORMING AMENDMENT.—Subparagraph 

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

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

11 (b) EXEMPT-INTEREST DIVIDENDS.—Subparagraph 

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

13 ‘‘(A) DEFINITION OF EXEMPT-INTEREST

14 DIVIDEND.— 

15 ‘‘(i) IN GENERAL.—Except as pro16 vided in clause (ii), an exempt-interest divi17 dend is any dividend or part thereof (other 

18 than a capital gain dividend) paid by a 

19 regulated investment company and re20 ported by the company as an exempt-inter21 est dividend in written statements fur22 nished to its shareholders. 

23 ‘‘(ii) EXCESS REPORTED AMOUNTS.— 

24 If the aggregate reported amount with re25 spect to the company for any taxable year 
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1 exceeds the exempt interest of the company 

2 for such taxable year, an exempt-interest 

3 dividend is the excess of— 

4 ‘‘(I) the reported exempt-interest 

5 dividend amount, over 

6 ‘‘(II) the excess reported amount 

7 which is allocable to such reported ex8 empt-interest dividend amount. 

9 ‘‘(iii) ALLOCATION OF EXCESS RE10 PORTED AMOUNT.— 

11 ‘‘(I) IN GENERAL.—Except as 

12 provided in subclause (II), the excess 

13 reported amount (if any) which is al14 locable to the reported exempt-interest 

15 dividend amount is that portion of the 

16 excess reported amount which bears 

17 the same ratio to the excess reported 

18 amount as the reported exempt-inter19 est dividend amount bears to the ag20 gregate reported amount. 

21 ‘‘(II) SPECIAL RULE FOR NON22 CALENDAR YEAR TAXPAYERS.—In the 

23 case of any taxable year which does 

24 not begin and end in the same cal25 endar year, if the post-December re-
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1 ported amount equals or exceeds the 

2 excess reported amount for such tax3 able year, subclause (I) shall be ap4 plied by substituting ‘post-December 

5 reported amount’ for ‘aggregate re6 ported amount’ and no excess re7 ported amount shall be allocated to 

8 any dividend paid on or before De9 cember 31 of such taxable year. 

10 ‘‘(iv) DEFINITIONS.—For purposes of 

11 this subparagraph— 

12 ‘‘(I) REPORTED EXEMPT-INTER13 EST DIVIDEND AMOUNT.—The term 

14 ‘reported exempt-interest dividend 

15 amount’ means the amount reported 

16 to its shareholders under clause (i) as 

17 an exempt-interest dividend. 

18 ‘‘(II) EXCESS REPORTED

19 AMOUNT.—The term ‘excess reported 

20 amount’ means the excess of the ag21 gregate reported amount over the ex22 empt interest of the company for the 

23 taxable year. 

24 ‘‘(III) AGGREGATE REPORTED

25 AMOUNT.—The term ‘aggregate re-
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1 ported amount’ means the aggregate 

2 amount of dividends reported by the 

3 company under clause (i) as exempt4 interest dividends for the taxable year 

5 (including exempt-interest dividends 

6 paid after the close of the taxable year 

7 described in section 855). 

8 ‘‘(IV) POST-DECEMBER RE9 PORTED AMOUNT.—The term ‘post10 December reported amount’ means 

11 the aggregate reported amount deter12 mined by taking into account only 

13 dividends paid after December 31 of 

14 the taxable year. 

15 ‘‘(V) EXEMPT INTEREST.—The 

16 term ‘exempt interest’ means, with re17 spect to any regulated investment 

18 company, the excess of the amount of 

19 interest excludable from gross income 

20 under section 103(a) over the 

21 amounts disallowed as deductions 

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

23 (c) FOREIGN TAX CREDITS.— 

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

25 853 is amended— 
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1 (A) by striking ‘‘so designated by the com2 pany in a written notice mailed to its share3 holders not later than 60 days after the close 

4 of the taxable year’’ and inserting ‘‘so reported 

5 by the company in a written statement fur6 nished to such shareholder’’, and 

7 (B) by striking ‘‘NOTICE’’ in the heading 

8 and inserting ‘‘STATEMENTS’’. 

9 (2) CONFORMING AMENDMENTS.—Subsection 

10 (d) of section 853 is amended— 

11 (A) by striking ‘‘and the notice to share12 holders required by subsection (c)’’ in the text 

13 thereof, and 

14 (B) by striking ‘‘AND NOTIFYING SHARE15 HOLDERS’’ in the heading thereof. 

16 (d) CREDITS FOR TAX CREDIT BONDS.— 

17 (1) IN GENERAL.—Subsection (c) of section 

18 853A is amended— 

19 (A) by striking ‘‘so designated by the regu20 lated investment company in a written notice 

21 mailed to its shareholders not later than 60 

22 days after the close of its taxable year’’ and in23 serting ‘‘so reported by the regulated invest24 ment company in a written statement furnished 

25 to such shareholder’’, and 
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1 (B) by striking ‘‘NOTICE’’ in the heading 

2 and inserting ‘‘STATEMENTS’’. 

3 (2) CONFORMING AMENDMENTS.—Subsection 

4 (d) of section 853A is amended— 

5 (A) by striking ‘‘and the notice to share6 holders required by subsection (c)’’ in the text 

7 thereof, and 

8 (B) by striking ‘‘AND NOTIFYING SHARE9 HOLDERS’’ in the heading thereof. 

10 (e) DIVIDEND RECEIVED DEDUCTION, ETC.— 

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

12 854(b) is amended— 

13 (A) by striking ‘‘designated under this sub14 paragraph by the regulated investment com15 pany’’ in subparagraph (A) and inserting ‘‘re16 ported by the regulated investment company as 

17 eligible for such deduction in written statements 

18 furnished to its shareholders’’, 

19 (B) by striking ‘‘designated by the regu20 lated investment company’’ in subparagraph 

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

22 investment company as qualified dividend in23 come in written statements furnished to its 

24 shareholders’’, 
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1 (C) by striking ‘‘designated’’ in subpara2 graph (C)(i) and inserting ‘‘reported’’, and 

3 (D) by striking ‘‘designated’’ in subpara4 graph (C)(ii) and inserting ‘‘reported’’. 

5 (2) CONFORMING AMENDMENTS.—Subsection 

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

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

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

9 (f) DIVIDENDS PAID TO CERTAIN FOREIGN PER10 SONS.— 

11 (1) INTEREST-RELATED DIVIDENDS.—Subpara12 graph (C) of section 871(k)(1) is amended by strik13 ing all that precedes ‘‘any taxable year of the com14 pany beginning’’ and inserting the following: 

15 ‘‘(C) INTEREST-RELATED DIVIDEND.—For 

16 purposes of this paragraph— 

17 ‘‘(i) IN GENERAL.—Except as pro18 vided in clause (ii), an interest related divi19 dend is any dividend, or part thereof, 

20 which is reported by the company as an in21 terest related dividend in written state22 ments furnished to its shareholders. 

23 ‘‘(ii) EXCESS REPORTED AMOUNTS.— 

24 If the aggregate reported amount with re25 spect to the company for any taxable year 
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1 exceeds the qualified net interest income of 

2 the company for such taxable year, an in3 terest related dividend is the excess of— 

4 ‘‘(I) the reported interest related 

5 dividend amount, over 

6 ‘‘(II) the excess reported amount 

7 which is allocable to such reported in8 terest related dividend amount. 

9 ‘‘(iii) ALLOCATION OF EXCESS RE10 PORTED AMOUNT.— 

11 ‘‘(I) IN GENERAL.—Except as 

12 provided in subclause (II), the excess 

13 reported amount (if any) which is al14 locable to the reported interest related 

15 dividend amount is that portion of the 

16 excess reported amount which bears 

17 the same ratio to the excess reported 

18 amount as the reported interest re19 lated dividend amount bears to the 

20 aggregate reported amount. 

21 ‘‘(II) SPECIAL RULE FOR NON22 CALENDAR YEAR TAXPAYERS.—In the 

23 case of any taxable year which does 

24 not begin and end in the same cal25 endar year, if the post-December re-
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1 ported amount equals or exceeds the 

2 excess reported amount for such tax3 able year, subclause (I) shall be ap4 plied by substituting ‘post-December 

5 reported amount’ for ‘aggregate re6 ported amount’ and no excess re7 ported amount shall be allocated to 

8 any dividend paid on or before De9 cember 31 of such taxable year. 

10 ‘‘(iv) DEFINITIONS.—For purposes of 

11 this subparagraph— 

12 ‘‘(I) REPORTED INTEREST RE13 LATED DIVIDEND AMOUNT.—The 

14 term ‘reported interest related divi15 dend amount’ means the amount re16 ported to its shareholders under 

17 clause (i) as an interest related divi18 dend. 

19 ‘‘(II) 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 ‘‘(III) 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) as interest 

6 related dividends for the taxable year 

7 (including interest related dividends 

8 paid after the close of the taxable year 

9 described in section 855). 

10 ‘‘(IV) 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 ‘‘(v) TERMINATION.—The term ‘inter18 est related dividend’ shall not include any 

19 dividend with respect to’’. 

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

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

22 by striking all that precedes ‘‘any taxable year of the 

23 company beginning’’ and inserting the following: 

24 ‘‘(C) SHORT-TERM CAPITAL GAIN DIVI25 DEND.—For purposes of this paragraph— 
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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clause (ii), the term ‘short-term 

3 capital gain dividend’ means any dividend, 

4 or part thereof, which is reported by the 

5 company as a short-term capital gain divi6 dend in written statements furnished to its 

7 shareholders. 

8 ‘‘(ii) EXCESS REPORTED AMOUNTS.— 

9 If the aggregate reported amount with re10 spect to the company for any taxable year 

11 exceeds the qualified short-term gain of the 

12 company for such taxable year, the term 

13 ‘short-term capital gain dividend’ means 

14 the excess of— 

15 ‘‘(I) the reported short-term cap16 ital gain dividend amount, over 

17 ‘‘(II) the excess reported amount 

18 which is allocable to such reported 

19 short-term capital gain dividend 

20 amount. 

21 ‘‘(iii) ALLOCATION OF EXCESS RE22 PORTED AMOUNT.— 

23 ‘‘(I) IN GENERAL.—Except as 

24 provided in subclause (II), the excess 

25 reported amount (if any) which is al-
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1 locable to the reported short-term cap2 ital gain dividend amount is that por3 tion of the excess reported amount 

4 which bears the same ratio to the ex5 cess reported amount as the reported 

6 short-term capital gain dividend 

7 amount bears to the aggregate re8 ported amount. 

9 ‘‘(II) SPECIAL RULE FOR NON10 CALENDAR YEAR TAXPAYERS.—In the 

11 case of any taxable year which does 

12 not begin and end in the same cal13 endar year, if the post-December re14 ported amount equals or exceeds the 

15 excess reported amount for such tax16 able year, subclause (I) shall be ap17 plied by substituting ‘post-December 

18 reported amount’ for ‘aggregate re19 ported amount’ and no excess re20 ported amount shall be allocated to 

21 any dividend paid on or before De22 cember 31 of such taxable year. 

23 ‘‘(iv) DEFINITIONS.—For purposes of 

24 this subparagraph— 
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1 ‘‘(I) REPORTED SHORT-TERM

2 CAPITAL GAIN DIVIDEND AMOUNT.— 

3 The term ‘reported short-term capital 

4 gain dividend amount’ means the 

5 amount reported to its shareholders 

6 under clause (i) as a short-term cap7 ital gain dividend. 

8 ‘‘(II) EXCESS REPORTED

9 AMOUNT.—The term ‘excess reported 

10 amount’ means the excess of the ag11 gregate reported amount over the 

12 qualified short-term gain of the com13 pany for the taxable year. 

14 ‘‘(III) AGGREGATE REPORTED

15 AMOUNT.—The term ‘aggregate re16 ported amount’ means the aggregate 

17 amount of dividends reported by the 

18 company under clause (i) as short19 term capital gain dividends for the 

20 taxable year (including short-term 

21 capital gain dividends paid after the 

22 close of the taxable year described in 

23 section 855). 

24 ‘‘(IV) POST-DECEMBER RE25 PORTED AMOUNT.—The term ‘post- 
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1 December reported amount’ means 

2 the aggregate reported amount deter3 mined by taking into account only 

4 dividends paid after December 31 of 

5 the taxable year. 

6 ‘‘(v) TERMINATION.—The term ‘short7 term capital gain dividend’ shall not in8 clude any dividend with respect to’’. 

9 (g) CONFORMING AMENDMENTS.—Section 855 is 

10 amended— 

11 (1) by striking subsection (c) and redesignating 

12 subsection (d) as subsection (c), and 

13 (2) by striking ‘‘, (c) and (d)’’ in subsection (a) 

14 and inserting ‘‘and (c)’’. 

15 (h) 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 (i) APPLICATION OF JGTRRA SUNSET.—Section 

19 303 of the Jobs and Growth Tax Relief Reconciliation Act 

20 of 2003 shall apply to the amendments made by subpara21 graphs (B) and (D) of subsection (e)(1) to the same extent 

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

23 to the amendments made by section 302 of such Act. 
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1 SEC. 302. EARNINGS AND PROFITS OF REGULATED INVEST2 MENT COMPANIES. 

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

4 is amended to read as follows: 

5 ‘‘(1) TREATMENT OF NONDEDUCTIBLE

6 ITEMS.— 

7 ‘‘(A) NET CAPITAL LOSS.—If a regulated 

8 investment company has a net capital loss for 

9 any taxable year— 

10 ‘‘(i) such net capital loss shall not be 

11 taken into account for purposes of deter12 mining the company’s earnings and profits, 

13 and 

14 ‘‘(ii) any capital loss arising on the 

15 first day of the next taxable year by reason 

16 of clause (ii) or (iii) of section 

17 1212(a)(3)(A) shall be treated as so aris18 ing for purposes of determining earnings 

19 and profits. 

20 ‘‘(B) OTHER NONDEDUCTIBLE ITEMS.— 

21 ‘‘(i) IN GENERAL.—The earnings and 

22 profits of a regulated investment company 

23 for any taxable year (but not its accumu24 lated earnings and profits) shall not be re25 duced by any amount which is not allow26 able as a deduction (other than by reason 
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1 of section 265 or 171(a)(2)) in computing 

2 its taxable income for such taxable year. 

3 ‘‘(ii) COORDINATION WITH TREAT4 MENT OF NET CAPITAL LOSSES.—Clause 

5 (i) shall not apply to a net capital loss to 

6 which subparagraph (A) applies.’’. 

7 (b) CONFORMING AMENDMENTS.— 

8 (1) Subsection (c) of section 852 is amended by 

9 adding at the end the following new paragraph: 

10 ‘‘(4) REGULATED INVESTMENT COMPANY.—For 

11 purposes of this subsection, the term ‘regulated in12 vestment company’ includes a domestic corporation 

13 which is a regulated investment company determined 

14 without regard to the requirements of subsection 

15 (a).’’. 

16 (2) Paragraphs (1)(A) and (2)(A) of section 

17 871(k) are each amended by inserting ‘‘which meets 

18 the requirements of section 852(a) for the taxable 

19 year with respect to which the dividend is paid’’ be20 fore the period at the end. 

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

22 this section shall apply to taxable years beginning after 

23 the date of the enactment of this Act. 
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1 SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS 

2 AND FOREIGN TAX CREDITS IN FUND OF 

3 FUNDS STRUCTURE. 

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

5 at the end the following new subsection: 

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

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

8 fund of funds— 

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

10 exempt-interest dividends to its shareholders 

11 without regard to whether such fund satisfies 

12 the requirements of the first sentence of sub13 section (b)(5), and 

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

15 of section 853 (relating to foreign tax credit al16 lowed to shareholders) without regard to the re17 quirement of subsection (a)(1) thereof. 

18 ‘‘(2) QUALIFIED FUND OF FUNDS.—For pur19 poses of this subsection, the term ‘qualified fund of 

20 funds’ means a regulated investment company if (at 

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

22 50 percent of the value of its total assets is rep23 resented by interests in other regulated investment 

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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVI5 DENDS OF REGULATED INVESTMENT COMPA6 NIES. 

7 (a) DEADLINE FOR DECLARATION OF DIVIDEND.— 

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

9 follows: 

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

11 ‘‘(A) the 15th day of the 9th month fol12 lowing the close of the taxable year, or 

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

14 for filing the company’s return for the taxable 

15 year, the due date for filing such return taking 

16 into account such extension, and’’. 

17 (b) DEADLINE FOR DISTRIBUTION OF DIVIDEND.— 

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

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

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

21 (c) SHORT-TERM CAPITAL GAIN.—Subsection (a) of 

22 section 855 is amended by adding at the end the following: 

23 ‘‘For purposes of paragraph (2), a dividend attributable 

24 to any short-term capital gain with respect to which a no25 tice is required under the Investment Company Act of 
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1 1940 shall be treated as the same type of dividend as a 

2 capital gain dividend.’’. 

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

4 this section shall apply to distributions in taxable years 

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

6 SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGU7 LATED INVESTMENT COMPANIES. 

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

9 amended by adding at the end the following new para10 graph: 

11 ‘‘(4) CERTAIN DISTRIBUTIONS BY REGULATED

12 INVESTMENT COMPANIES IN EXCESS OF EARNINGS

13 AND PROFITS.—In the case of a regulated invest14 ment company that has a taxable year other than a 

15 calendar year, if the distributions by the company 

16 with respect to any class of stock of such company 

17 for the taxable year exceed the company’s current 

18 and accumulated earnings and profits which may be 

19 used for the payment of dividends on such class of 

20 stock, the company’s current earnings and profits 

21 shall, for purposes of subsection (a), be allocated 

22 first to distributions with respect to such class of 

23 stock made during the portion of the taxable year 

24 which precedes January 1.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to distributions made in taxable 

3 years beginning after the date of the enactment of this 

4 Act. 

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

6 REGULATED INVESTMENT COMPANY. 

7 (a) REDEMPTIONS TREATED AS EXCHANGES.— 

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

9 302 is amended by redesignating paragraph (5) as 

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

11 the following new paragraph: 

12 ‘‘(5) REDEMPTIONS BY CERTAIN REGULATED

13 INVESTMENT COMPANIES.—Except to the extent 

14 provided in regulations prescribed by the Secretary, 

15 subsection (a) shall apply to any distribution in re16 demption of stock of a publicly offered regulated in17 vestment company (within the meaning of section 

18 67(c)(2)(B)) if— 

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

20 of the stockholder, and 

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

22 is redeemable upon the demand of the stock23 holder.’’. 
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1 (2) CONFORMING AMENDMENT.—Subsection (a) 

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

3 inserting ‘‘(4), or (5)’’. 

4 (b) LOSSES ON REDEMPTIONS NOT DISALLOWED

5 FOR FUND-OF-FUNDS REGULATED INVESTMENT COMPA6 NIES.—Paragraph (3) of section 267(f) is amended by 

7 adding at the end the following new subparagraph: 

8 ‘‘(D) REDEMPTIONS BY FUND-OF-FUNDS

9 REGULATED INVESTMENT COMPANIES.—Except 

10 to the extent provided in regulations prescribed 

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

12 apply to any distribution in redemption of stock 

13 of a regulated investment company if— 

14 ‘‘(i) such company issues only stock 

15 which is redeemable upon the demand of 

16 the stockholder, and 

17 ‘‘(ii) such redemption is upon the de18 mand of another regulated investment 

19 company.’’. 

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

21 this section shall apply to distributions after the date of 

22 the enactment of this Act. 
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1 SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR 

2 PUBLICLY OFFERED REGULATED INVEST3 MENT COMPANIES. 

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

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

6 in the case of a publicly offered regulated investment com7 pany (as defined in section 67(c)(2)(B)), the amount’’. 

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

9 amended by inserting ‘‘(other than a publicly offered regu10 lated investment company (as so defined))’’ after ‘‘regu11 lated investment company’’ in the second sentence thereof. 

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

13 this section shall apply to distributions in taxable years 

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

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

16 LOSSES OF REGULATED INVESTMENT COM17 PANIES. 

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

19 is amended to read as follows: 

20 ‘‘(8) ELECTIVE DEFERRAL OF CERTAIN LATE21 YEAR LOSSES.— 

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

23 provided by the Secretary, a regulated invest24 ment company may elect for any taxable year to 

25 treat any portion of any qualified late-year loss 

26 for such taxable year as arising on the first day 
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1 of the following taxable year for purposes of 

2 this title. 

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

4 purposes of this paragraph, the term ‘qualified 

5 late-year loss’ means— 

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

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

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

9 purposes of this paragraph, the term ‘post-Oc10 tober capital loss’ means the greatest of— 

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

12 the portion of the taxable year after Octo13 ber 31, 

14 ‘‘(ii) the net long-term capital loss at15 tributable to such portion of the taxable 

16 year, or 

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

18 attributable to such portion of the taxable 

19 year. 

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

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

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

23 ‘‘(i) the sum of— 

24 ‘‘(I) the specified losses (as de25 fined in section 4982(e)(5)(B)(ii)) at-
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1 tributable to the portion of the taxable 

2 year after October 31, plus 

3 ‘‘(II) the ordinary losses not de4 scribed in subclause (I) attributable to 

5 the portion of the taxable year after 

6 December 31, over 

7 ‘‘(ii) the sum of— 

8 ‘‘(I) the specified gains (as de9 fined in section 4982(e)(5)(B)(i)) at10 tributable to the portion of the taxable 

11 year after October 31, plus 

12 ‘‘(II) the ordinary income not de13 scribed in subclause (I) attributable to 

14 the portion of the taxable year after 

15 December 31. 

16 ‘‘(E) SPECIAL RULE FOR COMPANIES DE17 TERMINING REQUIRED CAPITAL GAIN DISTRIBU18 TIONS ON TAXABLE YEAR BASIS.—In the case 

19 of a company to which an election under section 

20 4982(e)(4) applies— 

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

22 ends with the month of November, the 

23 amount of qualified late-year losses (if 

24 any) shall be computed without regard to 

25 any income, gain, or loss described in sub-
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1 paragraphs (C), (D)(i)(I), and (D)(ii)(I), 

2 and 

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

4 ends with the month of December, sub5 paragraph (A) shall not apply.’’. 

6 (b) CONFORMING AMENDMENTS.— 

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

8 striking paragraph (10). 

9 (2) Paragraph (2) of section 852(c) is amended 

10 by striking the first sentence and inserting the fol11 lowing: ‘‘For purposes of applying this chapter to 

12 distributions made by a regulated investment com13 pany with respect to any calendar year, the earnings 

14 and profits of such company shall be determined 

15 without regard to any net capital loss attributable to 

16 the portion of the taxable year after October 31 and 

17 without regard to any late-year ordinary loss (as de18 fined in subsection (b)(8)(D)).’’ 

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

20 amended by striking the last two sentences and in21 serting the following: ‘‘For purposes of this subpara22 graph, the net short-term capital gain of the regu23 lated investment company shall be computed by 

24 treating any short-term capital gain dividend includ25 ible in gross income with respect to stock of another 
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1 regulated investment company as a short-term cap2 ital gain.’’. 

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

4 this section shall apply to taxable years beginning after 

5 the date of the enactment of this Act. 

6 SEC. 309. EXCEPTION TO HOLDING PERIOD REQUIREMENT 

7 FOR CERTAIN REGULARLY DECLARED EX8 EMPT-INTEREST DIVIDENDS. 

9 (a) IN GENERAL.—Subparagraph (E) of section 

10 852(b)(4) is amended by striking all that precedes ‘‘In the 

11 case of a regulated investment company’’ and inserting the 

12 following: 

13 ‘‘(E) EXCEPTION TO HOLDING PERIOD RE14 QUIREMENT FOR CERTAIN REGULARLY DE15 CLARED EXEMPT-INTEREST DIVIDENDS.— 

16 ‘‘(i) DAILY DIVIDEND COMPANIES.— 

17 Except as otherwise provided by regula18 tions, subparagraph (B) shall not apply 

19 with respect to a regular dividend paid by 

20 a regulated investment company which de21 clares exempt-interest dividends on a daily 

22 basis in an amount equal to at least 90 

23 percent of its net tax-exempt interest and 

24 distributes such dividends on a monthly or 

25 more frequent basis. 
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1 ‘‘(ii) AUTHORITY TO SHORTEN RE2 QUIRED HOLDING PERIOD WITH RESPECT

3 TO OTHER COMPANIES.—’’. 

4 (b) CONFORMING AMENDMENT.—Clause (ii) of sec5 tion 852(b)(4)(E), as amended by subsection (a), is 

6 amended by inserting ‘‘(other than a company described 

7 in clause (i))’’ after ‘‘regulated investment company’’. 

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

9 this section shall apply to losses incurred on shares of 

10 stock for which the taxpayer’s holding period begins after 

11 the date of the enactment of this Act. 

12 TITLE IV—MODIFICATIONS RE13 LATED TO EXCISE TAX APPLI14 CABLE TO REGULATED IN15 VESTMENT COMPANIES 

16 SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGU17 LATED INVESTMENT COMPANIES OWNED BY 

18 TAX EXEMPT ENTITIES. 

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

20 amended— 

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

22 paragraph (1), 

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

24 (1), 
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1 (3) by striking the period at the end of para2 graph (2), and 

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

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), or 

8 ‘‘(4) another regulated investment company de9 scribed in this subsection.’’. 

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

11 this section shall apply to calendar years beginning after 

12 the date of the enactment of this Act. 

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

14 REGULATED INVESTMENT COMPANIES FOR 

15 EXCISE TAX PURPOSES. 

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

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

18 the following new paragraphs: 

19 ‘‘(5) TREATMENT OF SPECIFIED GAINS AND

20 LOSSES AFTER OCTOBER 31 OF CALENDAR YEAR.— 

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

22 specified loss which (but for this paragraph) 

23 would be properly taken into account for the 

24 portion of the calendar year after October 31 
45 

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1 shall be treated as arising on January 1 of the 

2 following calendar year. 

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

4 purposes of this paragraph— 

5 ‘‘(i) SPECIFIED GAIN.—The term 

6 ‘specified gain’ means ordinary gain from 

7 the sale, exchange, or other disposition of 

8 property (including the termination of a 

9 position with respect to such property). 

10 Such term shall include any foreign cur11 rency gain attributable to a section 988 

12 transaction (within the meaning of section 

13 988) and any amount includible in gross 

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

15 ‘‘(ii) SPECIFIED LOSS.—The term 

16 ‘specified loss’ means ordinary loss from 

17 the sale, exchange, or other disposition of 

18 property (including the termination of a 

19 position with respect to such property). 

20 Such term shall include any foreign cur21 rency loss attributable to a section 988 

22 transaction (within the meaning of section 

23 988) and any amount allowable as a de24 duction under section 1296(a)(2). 
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1 ‘‘(C) SPECIAL RULE FOR COMPANIES

2 ELECTING TO USE THE TAXABLE YEAR.—In the 

3 case of any company making an election under 

4 paragraph (4), subparagraph (A) shall be ap5 plied by substituting the last day of the com6 pany’s taxable year for October 31. 

7 ‘‘(6) TREATMENT OF MARK TO MARKET

8 GAIN.— 

9 ‘‘(A) IN GENERAL.—For purposes of deter10 mining a regulated investment company’s ordi11 nary income, notwithstanding paragraph (1)(C), 

12 each specified mark to market provision shall be 

13 applied as if such company’s taxable year ended 

14 on October 31. In the case of a company mak15 ing an election under paragraph (4), the pre16 ceding sentence shall be applied by substituting 

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

18 October 31. 

19 ‘‘(B) SPECIFIED MARK TO MARKET PROVI20 SION.—For purposes of this paragraph, the 

21 term ‘specified mark to market provision’ 

22 means sections 1256 and 1296 and any other 

23 provision of this title (or regulations there24 under) which treats property as disposed of on 

25 the last day of the taxable year. 
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1 ‘‘(7) ELECTIVE DEFERRAL OF CERTAIN ORDI2 NARY LOSSES.—Except as provided in regulations 

3 prescribed by the Secretary, in the case of a regu4 lated investment company which has a taxable year 

5 other than the calendar year— 

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

7 its ordinary income for the calendar year with8 out regard to any net ordinary loss (determined 

9 without regard to specified gains and losses 

10 taken into account under paragraph (5)) which 

11 is attributable to the portion of such calendar 

12 year which is after the beginning of the taxable 

13 year which begins in such calendar year, and 

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

15 taken into account for a calendar year by rea16 son of subparagraph (A) shall be treated as 

17 arising on the 1st day of the following calendar 

18 year.’’. 

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

20 this section shall apply to calendar years beginning after 

21 the date of the enactment of this Act. 
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1 SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PUR2 POSES DETERMINED ON BASIS OF TAXES 

3 PAID BY REGULATED INVESTMENT COM4 PANY. 

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

6 amended by adding at the end the following new para7 graph: 

8 ‘‘(4) SPECIAL RULE FOR ESTIMATED TAX PAY9 MENTS.— 

10 ‘‘(A) IN GENERAL.—In the case of a regu11 lated investment company which elects the ap12 plication of this paragraph for any calendar 

13 year— 

14 ‘‘(i) the distributed amount with re15 spect to such company for such calendar 

16 year shall be increased by the amount on 

17 which qualified estimated tax payments are 

18 made by such company during such cal19 endar year, and 

20 ‘‘(ii) the distributed amount with re21 spect to such company for the following 

22 calendar year shall be reduced by the 

23 amount of such increase. 

24 ‘‘(B) QUALIFIED ESTIMATED TAX PAY25 MENTS.—For purposes of this paragraph, the 

26 term ‘qualified estimated tax payments’ means, 
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1 with respect to any calendar year, payments of 

2 estimated tax of a tax described in paragraph 

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

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

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

6 this section shall apply to calendar years beginning after 

7 the date of the enactment of this Act. 

8 SEC. 404. INCREASE IN REQUIRED DISTRIBUTION OF CAP9 ITAL GAIN NET INCOME. 

10 (a) IN GENERAL.—Subparagraph (B) of section 

11 4982(b)(1) is amended by striking ‘‘98 percent’’ and in12 serting ‘‘98.2 percent’’. 

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

14 this section shall apply to calendar years beginning after 

15 the date of the enactment of this Act. 

16 TITLE V—OTHER PROVISIONS 

17 SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RE18 SPECT TO LIABILITY FOR TAX OF REGU19 LATED INVESTMENT COMPANIES. 

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

21 68 is amended by striking section 6697 (and by striking 

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

23 of such part). 

24 (b) CONFORMING AMENDMENT.—Section 860 is 

25 amended by striking subsection (j). 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL 

5 RULE FOR REGULATED INVESTMENT COMPA6 NIES. 

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

8 852(f)(1) is amended by striking ‘‘subsequently acquires’’ 

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

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

11 and ending on January 31 of the calendar year following 

12 the calendar year that includes the date of such disposi13 tion,’’. 

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

15 this section shall apply to charges incurred in taxable 

16 years beginning after the date of the enactment of this 

17 Act. 

18 TITLE VI—PAYGO COMPLIANCE 

19 SEC. 601. PAYGO COMPLIANCE. 

20 The budgetary effects of this Act, for the purpose of 

21 complying with the Statutory Pay-As-You-Go Act of 2010, 

22 shall be determined by reference to the latest statement 

23 titled ‘‘Budgetary Effects of PAYGO Legislation’’ for this 

24 Act, submitted for printing in the Congressional Record 

25 by the Chairman of the House Budget Committee, pro-
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1 vided that such statement has been submitted prior to the 

2 vote on passage. 

Passed the House of Representatives September 28, 

2010. 

Attest: 

Clerk. 
111TH CONGRESS 

2D SESSION H. R. 4337 

AN ACT 

To amend the Internal Revenue Code of 1986 to 

vestment companies, and for other purposes. modify certain rules applicable to regulated in-