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, when-
ever 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 sat-
isfy 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 com-
panies. 
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 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 ex-
empt-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 COMPA-
NIES 
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 cap-
ital 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 there-
after (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
H. R. 4337—3 
losses for taxable years beginning after the date of the enact-
ment 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 IN-
COME AND ASSET TESTS OF REGU-
LATED 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 corpora-
tion’s status as a regulated investment company for any par-
ticular 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 require-
ments 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 other-
wise met within the time period specified in subclause 
(I). 
‘‘(B) RULE FOR CERTAIN DE MINIMIS FAILURES.—A cor-
poration 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—