In the Senate of the United States, 
December 8, 2010. 
Resolved, That the bill from the House of Representa-
tives (H.R. 4337) entitled ‘‘An Act to amend the Internal 
Revenue Code of 1986 to modify certain rules applicable to 
regulated investment companies, and for other purposes.’’, do 
pass with the following 
AMENDMENT: 
Strike all after the enacting clause and insert the 
following: 
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 pro-
vided, whenever in this Act an amendment or repeal is ex-
pressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be
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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 com-
pany. 
Sec. 307. Repeal of preferential dividend rule for publicly offered regulated invest-
ment companies. 
Sec. 308. Elective deferral of certain late-year losses of regulated investment com-
panies. 
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.
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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 IN-
VESTMENT 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 invest-
ment 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 cap-
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ital 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
PARA-
GRAPH 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 ap-
plied 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
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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 para-
graph (2), the amendments made by this section shall 
apply to net capital 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 
IN-
VESTMENT COMPANIES 
SEC. 201. SAVINGS PROVISIONS FOR FAILURES OF REGU-
LATED INVESTMENT COMPANIES TO SATISFY 
GROSS INCOME AND ASSET TESTS. 
(a) ASSET TEST.—Subsection (d) of section 851 is 
amended—
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(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 para-
graph: 
‘‘(2) SPECIAL RULES REGARDING FAILURE TO 
SATISFY REQUIREMENTS.—If paragraph (1) does not 
preserve a corporation’s status as a regulated invest-
ment 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 con-
sidered to have satisfied the requirements of such 
subsection for such quarter if— 
‘‘(i) following the corporation’s identi-
fication of the failure to satisfy the require-
ments of such subsection for such quarter, a 
description of each asset that causes the cor-
poration to fail to satisfy the requirements 
of such subsection at the close of such quar-
ter is set forth in a schedule for such quar-
ter filed in the manner provided by the Sec-
retary,
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‘‘(ii) the failure to meet the require-
ments of such subsection for such quarter is 
due to reasonable cause and not due to will-
ful 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 corpora-
tion’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 sub-
section are otherwise met within the time 
period specified in subclause (I). 
‘‘(B) RULE FOR CERTAIN DE MINIMIS FAIL-
URES.—A corporation that fails to meet the re-
quirements of subsection (b)(3) for such quarter 
shall nevertheless be considered to have satisfied 
the requirements of such subsection for such 
quarter if— 
‘‘(i) such failure is due to the owner-
ship of assets the total value of which does 
not exceed the lesser of—
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‘‘(I) 1 percent of the total value of 
the corporation’s assets at the end of 
the quarter for which such measure-
ment is done, or 
‘‘(II) $10,000,000, and 
‘‘(ii)(I) the corporation, following the 
identification of such failure, disposes of as-
sets in order to meet the requirements of 
such subsection within 6 months after the 
last day of the quarter in which the cor-
poration’s identification of the failure to 
satisfy the requirements of such subsection 
occurred or such other time period pre-
scribed by the Secretary and in the manner 
prescribed by the Secretary, or 
‘‘(II) the requirements of such sub-
section 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 quar-
ter, there is hereby imposed on such cor-
poration a tax in an amount equal to the 
greater of— 
‘‘(I) $50,000, or
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‘‘(II) 
the 
amount 
determined 
(pursuant to regulations promulgated 
by the Secretary) by multiplying the 
net income generated by the assets de-
scribed in the schedule specified in sub-
paragraph (A)(i) for the period speci-
fied 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 ex-
cise 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:
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‘‘(i) FAILURE TO SATISFY GROSS INCOME TEST.— 
‘‘(1) DISCLOSURE
REQUIREMENT.—A corpora-
tion that fails to meet the requirement of paragraph 
(2) of subsection (b) for any taxable year shall never-
theless be considered to have satisfied the requirement 
of such paragraph for such taxable year if— 
‘‘(A) following the corporation’s identifica-
tion 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 
‘‘(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 com-
pany 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 com-
pany which is derived from such sources.’’.
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(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 
DIVI-
DENDS 
AND 
OTHER 
DIS-
TRIBUTIONS 
SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION RE-
QUIREMENTS 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
DIVI-
DEND.—For purposes of this part—