Changes To Note
- A money market fund that has an interest in a partnership that invests in assets exempt from taxation under section 103 may qualify to pay exempt-interest dividends by consenting to the partnership's election to close its books monthly. For details, see Statements on page 4.
- Additional guidance has been issued for funds regarding adopting or changing an accounting method and section 481(a) adjustments. See Accounting Methods on page 4 and Change in accounting method on page 5 for details.
- New procedures were issued under which a fund may obtain automatic approval to adopt, change, or retain an accounting period. See Change in tax year on page 5 for details.
- The requirements for the built-in gains tax have changed for certain RIC elections and property transfers from a C corporation that occur after January 1, 2002, under Temporary Regulations section 1.337(d)-7T. See Built-in gains tax on page 11 for details.
Photographs of Missing Children
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Unresolved Tax Issues
If the fund has attempted to deal with an IRS problem unsuccessfully, it should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents the fund's interest and concerns within the IRS by protecting its rights and resolving problems that have not been fixed through normal channels.
While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that the fund's case is given a complete and impartial review.
The fund's assigned personal advocate will listen to its point of view and will work with the fund to address its concerns. The fund can expect the advocate to provide:
- A fresh look at a new or on-going problem.
- Timely acknowledgement.
- The name and phone number of the individual assigned to its case.
- Updates on progress.
- Timeframes for action.
- Speedy resolution.
- Courteous service.
When contacting the Taxpayer Advocate, the fund should provide the following information:
- The fund's name, address, and employer identification number (EIN).
- The name and telephone number of an authorized contact person and the hours he or she can be reached.
- The type of tax return and year(s) involved.
- A detailed description of the problem.
- Previous attempts to solve the problem and the office that had been contacted.
- A description of the hardship the fund is facing (if applicable).
The fund may contact a Taxpayer Advocate by calling, 1-877-777-4778 (toll free). Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for the Taxpayer Advocate assistance. If the fund prefers, it may call, write, or fax the Taxpayer Advocate office in its area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.
How To Get Forms and Publications
Personal computer. You can access the IRS Web Site 24 hours a day, 7 days a week at www.irs.gov to:
- Order IRS products on-line.
- Download forms, instructions, and publications.
- See answers to frequently asked tax questions.
- Search publications on-line by topic or keyword.
- Send us comments or request help by e-mail.
- Sign up to receive local and national tax news by e-mail.
You can also reach us using file transfer protocol at ftp.irs.gov.
CD-ROM. Order Pub. 1796, Federal Tax Products on CD-ROM, and get:
- Current year forms, instructions, and publications.
- Prior year forms and instructions.
- Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
- The Internal Revenue Bulletin.
Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $22 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $22 (plus a $5 handling fee).
By phone and in person. You can order forms and publications 24 hours a day, 7 days a week by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.
How To Access the Internal Revenue Bulletin (I.R.B.)
You can access the I.R.B. on the Internet at www.irs.gov (post-1995 Bulletins only). Under contents, select Businesses. Under topics, select More Topics. Then select Internal Revenue Bulletins.
General Instructions
Purpose of Form
Use Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a regulated investment company as defined in section 851.
Who Must File
A domestic corporation that elects to be treated as a RIC for the tax year (or has made an election for a prior tax year) and meets the requirements listed below must file Form 1120-RIC. The election is made by computing taxable income as a RIC on Form 1120-RIC.
RIC Requirements
A corporation that elects to be treated as a RIC must be a domestic corporation that:
- Is registered with the Securities and Exchange Commission throughout the tax year as a management company or unit investment trust under the Investment Company Act of 1940 (the ICA),
- Has an election in effect under the ICA to be treated as a business development company, or
- Is a common trust fund or similar fund that is neither an investment company under section 3(c)(3) of the ICA nor a common trust fund as defined under section 584(a).
In addition, the corporation must meet the requirements 1 through 5 below in order to qualify as a RIC.
- At least 90% of its gross income (including tax-exempt interest income) must be derived from the following items.
- Dividends,
- Interest,
- Payments with respect to securities loans (as defined in section 512(a)(5)),
- Gains from the sale or other disposition of stock or securities (as defined in ICA section 2(a)(36)) or foreign currencies, or
- Other income (including gains from options, futures, or forward contracts) derived from the company's business of investing in such stock, securities, or currencies.
Income from a partnership or trust qualifies under the 90% test to the extent the company's distributive share of such income is from items described above as realized by the partnership or trust.
Income that a RIC receives in the normal course of business as a reimbursement from its investment advisor is qualifying income for purposes of the 90% test if the reimbursement is includible in the RIC's gross income.
- At the end of each quarter of the company's tax year, at least 50% of the value of its assets must be invested in the following items.
- Cash and cash items (including receivables),
- Government securities,
- Securities of other RICs, and
- Securities of other issuers, except that the investment in a single issuer of securities may not exceed 5% of the value of the company's assets or 10% of the outstanding voting securities of the issuer (except as provided in section 851(e)). See sections 851(b)(3) and 851(c).
- At the end of each quarter of the company's tax year, no more than 25% of the value of the company's assets may be invested in the securities (excluding government securities or securities of other RICs) of a single issuer or in the securities of two or more issuers controlled by the RIC and engaged in the same or related trades or businesses. See sections 851(b)(3) and 851(c).
- The company's deduction for dividends paid for the tax year (as defined in section 561, but without regard to capital gain dividends) equals or exceeds the sum of:
- 90% of its investment company taxable income determined without regard to section 852(b)(2)(D); and
- 90% of the excess of the company's interest income excludable from gross income under section 103(a) over its deductions disallowed under sections 265 and 171(a)(2).
- The company must have (a) been a RIC for all tax years ending after November 7, 1983, or (b) had at the end of the current tax year, no accumulated earnings and profits from any non-RIC tax year.
Note: For this purpose, distributions after 2001 are treated as made from the earliest earnings and profits accumulated in any non-RIC tax year. See section 852(c)(3). Also see section 852(e) for procedures that may allow the RIC to avoid disqualification for the initial year the RIC did not meet the requirement under 5(b) above.
Definition of a Fund
A fund is a separate portfolio of assets, whose beneficial interests are owned by the holders of a class or series of stock that is preferred over all other classes or series for that portfolio of assets.
Note: As used in these instructions and Form 1120-RIC, the term fund refers to the above definition and to any RIC that does not have more than one portfolio of assets.
Where To File
File the fund's return at the applicable IRS address listed below.
| If the fund's principal business, office, or agency is located in:
|
And the total assets at the end of the tax year (Form 1120-RIC, page 1, item D) are:
|
Use the following Internal Revenue Service Center address:
|
| Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, Wisconsin
|
- Less than $10 million
- $10 million or more
|
- Cincinnati, OH 45999-0012
- Ogden, UT 84201-0012
|
| Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming
|
|
|
When To File
Generally, the fund must file its income tax return by the 15th day of the 3rd month after the end of the tax year. A new fund filing a short period return must generally file by the 15th day of the 3rd month after the short period ends. A fund that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.
If the due date falls on a Saturday, Sunday, or legal holiday, the fund may file on the next business day.
Private delivery services. Funds can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in September 2002. The list includes only the following:
- Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
- DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Extension of time to file. File Form 7004, Application for Automatic Extension of Time To File Corporation Income Tax Return, to request a 6-month extension of time to file.
Who Must Sign
The return must be signed and dated by:
- The president, vice president, treasurer, assistant treasurer, chief accounting officer, or
- Any other corporate officer (such as tax officer) authorized to sign.
Receivers, trustees, or assignees must also sign and date any return filed on behalf of a corporation.
Note: If this return is being filed for a series fund (as discussed in section 851(g)(2)), the return may be signed by any officer authorized to sign for the RIC in which the fund is a series.
If an employee of the fund completes Form 1120-RIC, the paid preparer's space should remain blank. In addition, anyone who prepares Form 1120-RIC but does not charge the fund should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the Paid Preparer's Use Only area.
The paid preparer must complete the required preparer information and -
- Sign the return, by hand, in the space provided for the preparer's signature (signature stamps and labels are not acceptable).
- Give a copy of the return to the taxpayer.
Paid Preparer Authorization
If the fund wants to allow the IRS to discuss its 2002 tax return with the paid preparer who signed it, check the Yes box in the signature area of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer's Use Only section of the fund's return. It does not apply to the firm, if any, shown in that section.
If the Yes box is checked, the fund is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The fund is also authorizing the paid preparer to:
- Give the IRS any information that is missing from the return,
- Call the IRS for information about the processing of the fund's return or the status of any related refund or payment(s), and
- Respond to certain IRS notices that the fund has shared with the preparer about math errors, offsets, and return preparation. The notices will not be sent to the preparer.
The fund is not authorizing the paid preparer to receive any refund check, bind the fund to anything (including any additional tax liability), or otherwise represent the fund before the IRS. If the fund wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.
The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (without regard to extensions) for filing the fund's 2003 tax return.
Other Forms, Returns, Schedules and Statements That May Be Required
Forms
The fund may have to file some of the following forms. See the form for more information.
Form W-2, Wage and Tax Statement; and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, and other compensation, and withheld income, social security, and Medicare taxes for employees.
Form W-2G, Certain Gambling Winnings. Report gambling winnings from horse racing, dog racing, jai alai, lotteries, keno, bingo, slot machines, sweepstakes, wagering pools, etc.
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Use this form to report certain transfers to foreign corporations under section 6038B.
Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return. The fund may be liable for FUTA tax and may have to file Form 940 or Form 940-EZ if it either:
- Paid wages of $1,500 or more in any calendar quarter in 2001 or 2002 or
- Had one or more employee who worked for the fund for at least some part of a day in any 20 or more different weeks in 2001 or 20 or more different weeks in 2002.
Form 941, Employer's Quarterly Federal Tax Return. Employers must file this form to report payroll income tax withheld and employer and employee social security and Medicare taxes. Also, see Trust fund recovery penalty on page 6.
Form 945, Annual Return of Withheld Federal Income Tax. File Form 945 to report income tax withheld from nonpayroll distributions or payments, such as the following income:
- Pensions, annuities, IRAs, military retirement, gambling winnings,
- Indian gaming profits, and backup withholding.
See Trust fund recovery penalty on page 6.
Form 966, Corporate Dissolution or Liquidation. File Form 966 to report the adoption of a resolution or plan to dissolve the fund or liquidate any of its stock.
Form 972, Consent of Shareholder To Include Specific Amount in Gross Income, and Form 973, Corporation Claim for Deduction for Consent Dividends. Use these forms to report a consent dividend under section 565 or to claim a consent dividend deduction under section 561.
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons; Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding; and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Use these forms to report and send withheld tax on payments or distributions made to nonresident alien individuals, foreign partnerships, or foreign corporations to the extent these payments constitute gross income from sources within the United States (see sections 861 through 865).
Also see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and sections 1441 and 1442.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Use Form 1096 to transmit Forms 1099, 1098, 5498, and W-2G to the Internal Revenue Service.
Form 1098, Mortgage Interest Statement: Report the receipt from any individual of $600 or more of mortgage interest (including points) in the course of the fund's trade or business and reimbursements of overpaid interest.
Form 1099-A. Report Acquisitions and abandonments of secured property.
Form 1099-B. Report proceeds from broker and barter exchange transactions.
Form 1099-C. Report cancellation of a debt.
Form 1099-DIV. Report certain dividends and distributions.
Form 1099-INT. Report interest income.
Form 1099-LTC. Report certain payments made under a long-term care insurance contract, and certain accelerated death benefits.
Form 1099-MISC. Report miscellaneous income (e.g., payments to certain fishing boat crew members; payments to providers of health and medical services; rent or royalty payments; and nonemployee compensation).
Note: Every fund must file Form 1099-MISC if it makes payments of rents, commissions, or other fixed or determinable income (see section 6041) totaling $600 or more to any one person in the course of its trade or business during the calendar year.
Form 1099-MSA. Report distributions from an Archer MSA or Medicare+Choice MSA.
Form 1099-OID. Report original issue discount.
Form 1099-PATR. Report distributions from cooperatives to their patrons.
Form 1099-R. Report distributions from pensions, annuities, retirement or profit-sharing plans, any individual retirement arrangements (IRAs) (including SEPs, SIMPLEs, Roth IRAs and Coverdell ESAs, Roth conversions and IRA recharacterizations), or insurance contracts.
Form 1099-S. Report gross proceeds from the sale or exchange of real estate transactions.
Also use these returns to report amounts received as a nominee for another person.
Form 2438, Undistributed Capital Gains Tax Return. If the fund designates undistributed capital gains under section 852(b)(3)(D), it must file this return and pay tax on the gains designated by the 30th day after the end of the fund's tax year. In addition, a copy of Form 2438 (with Copy A of all Forms 2439) must be attached to Form 1120-RIC when filed.
Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains. If the fund filed Form 2438, it must complete Form 2439 for each shareholder for whom it paid tax on undistributed capital gains and furnish a copy to the shareholder by the 60th day after the end of the fund's tax year.
Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Use this form if the fund received a distribution from a foreign trust; or, if the fund was the grantor of, transferor to, or transferor of a foreign trust that existed during the tax year. See Question 5, Schedule N (Form 1120).
Form 5452, Corporate Report of Nondividend Distributions.
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The fund may have to file Form 5471 if it meets any of the following conditions:
- It controls a foreign corporation,
- It acquires, disposes of, or owns 10% or more in value or vote of the outstanding stock of a foreign corporation, or
- It had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation. See Question 4, Schedule N (Form 1120).
Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. This form is filed if the fund is 25% or more foreign-owned. See Question 5, Schedule K, on page 12.
Form 5498, IRA and Coverdell ESA Contribution Information. Report contributions (including rollover contributions) to any IRA, including a SEP, SIMPLE, Roth IRA and Coverdell ESA, and to report Roth conversions, IRA recharacterizations, and the fair market value of the account.
Form 5498-MSA, Archer MSA or Medicare+Choice MSA Information. Report contributions to an Archer MSA and the fair market value of an Archer MSA or Medicare+Choice MSA.
For more information, see the general and specific Instructions for Forms 1099, 1098, 5498, and W-2G.
Form 5713, International Boycott Report. Funds that had operations in, or related to, certain boycotting countries file Form 5713.
Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement. These forms are used to disclose items or positions taken on a tax return that are not otherwise adequately disclosed or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).
Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Report the issuance of public offerings of debt instruments (obligations).
Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions.
Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies. If the fund is liable for the 4% excise tax on undistributed income under section 4982 or makes an election under section 4982(e)(4), it must file this return for the calendar year.
Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. Use this form to make certain elections by shareholders in a passive foreign investment company and to figure certain deferred taxes.
Form 8842, Election To Use Different Annualization Periods for Corporate Estimated Tax. Funds use Form 8842 to elect one of the annualization periods in section 6655(e)(2) to figure estimated tax payments under the annualized income installment method.
Form 8865, Return of U.S. Persons With Respect To Certain Foreign Partnerships. A fund may have to file Form 8865 if it:
- Controlled a foreign partnership (i.e., owned more than a 50% direct or indirect interest in the partnership).
- Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership.
- Had an acquisition, disposition, or change in proportional interest in a foreign partnership that:
- Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less than 10%.
- Changed its direct interest by at least a 10% interest.
- Contributed property to a foreign partnership in exchange for a partnership interest if:
- Immediately after the contribution, the fund owned, directly or indirectly, at least a 10% interest in the foreign partnership; or
- The FMV of the property the fund contributed to the foreign partnership in exchange for a partnership interest, when added to other contributions of property made to the foreign partnership during the preceding 12-month period, exceeds $100,000.
Also, the fund may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that foreign partnership if it was a partner at the time of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.
Form 8886, Reportable Transaction Disclosure Statement, is required if the RIC enters into a reportable transaction after December 31, 2002. The following are reportable transactions: (a) any transaction the same as or substantially similar to tax avoidance transactions identified by the IRS, (b) any transaction offered under conditions of confidentiality, (c) any transaction for which the RIC has contractual protection against disallowance of the tax benefits, and (d) any transaction resulting in a tax credit of more than $250,000, if the RIC held the asset generating the credit for less than 45 days.
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