[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4337 Enrolled Bill (ENR)]

        H.R.4337

                      One Hundred Eleventh Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

          Begun and held at the City of Washington on Tuesday,
             the fifth day of January, two thousand and ten


                                 An Act


 
   To amend the Internal Revenue Code of 1986 to modify certain rules 
  applicable to regulated investment companies, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
    (a) Short Title.--This Act may be cited as the ``Regulated 
Investment Company Modernization Act of 2010''.
    (b) Reference.--Except as otherwise expressly provided, whenever in 
this Act an amendment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.

   TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

Sec. 101. Capital loss carryovers of regulated investment companies.

  TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED 
                          INVESTMENT COMPANIES

Sec. 201. Savings provisions for failures of regulated investment 
          companies to satisfy gross income and asset tests.

    TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER 
                              DISTRIBUTIONS

Sec. 301. Modification of dividend designation requirements and 
          allocation rules for regulated investment companies.
Sec. 302. Earnings and profits of regulated investment companies.
Sec. 303. Pass-thru of exempt-interest dividends and foreign tax credits 
          in fund of funds structure.
Sec. 304. Modification of rules for spillover dividends of regulated 
          investment companies.
Sec. 305. Return of capital distributions of regulated investment 
          companies.
Sec. 306. Distributions in redemption of stock of a regulated investment 
          company.
Sec. 307. Repeal of preferential dividend rule for publicly offered 
          regulated investment companies.
Sec. 308. Elective deferral of certain late-year losses of regulated 
          investment companies.
Sec. 309. Exception to holding period requirement for certain regularly 
          declared exempt-interest dividends.

 TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED 
                          INVESTMENT COMPANIES

Sec. 401. Excise tax exemption for certain regulated investment 
          companies owned by tax exempt entities.
Sec. 402. Deferral of certain gains and losses of regulated investment 
          companies for excise tax purposes.
Sec. 403. Distributed amount for excise tax purposes determined on basis 
          of taxes paid by regulated investment company.
Sec. 404. Increase in required distribution of capital gain net income.

                        TITLE V--OTHER PROVISIONS

Sec. 501. Repeal of assessable penalty with respect to liability for tax 
          of regulated investment companies.
Sec. 502. Modification of sales load basis deferral rule for regulated 
          investment companies.

   TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

    SEC. 101. CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT 
      COMPANIES.
    (a) In General.--Subsection (a) of section 1212 is amended by 
redesignating paragraph (3) as paragraph (4) and by inserting after 
paragraph (2) the following new paragraph:
        ``(3) Regulated investment companies.--
            ``(A) In general.--If a regulated investment company has a 
        net capital loss for any taxable year--
                ``(i) paragraph (1) shall not apply to such loss,
                ``(ii) the excess of the net short-term capital loss 
            over the net long-term capital gain for such year shall be 
            a short-term capital loss arising on the first day of the 
            next taxable year, and
                ``(iii) the excess of the net long-term capital loss 
            over the net short-term capital gain for such year shall be 
            a long-term capital loss arising on the first day of the 
            next taxable year.
            ``(B) Coordination with general rule.--If a net capital 
        loss to which paragraph (1) applies is carried over to a 
        taxable year of a regulated investment company--
                ``(i) Losses to which this paragraph applies.--Clauses 
            (ii) and (iii) of subparagraph (A) shall be applied without 
            regard to any amount treated as a short-term capital loss 
            under paragraph (1).
                ``(ii) Losses to which general rule applies.--Paragraph 
            (1) shall be applied by substituting `net capital loss for 
            the loss year or any taxable year thereafter (other than a 
            net capital loss to which paragraph (3)(A) applies)' for 
            `net capital loss for the loss year or any taxable year 
            thereafter'.''.
    (b) Conforming Amendments.--
        (1) Subparagraph (C) of section 1212(a)(1) is amended to read 
    as follows:
            ``(C) a capital loss carryover to each of the 10 taxable 
        years succeeding the loss year, but only to the extent such 
        loss is attributable to a foreign expropriation loss,''.
        (2) Paragraph (10) of section 1222 is amended by striking 
    ``section 1212'' and inserting ``section 1212(a)(1)''.
    (c) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to net capital losses 
    for taxable years beginning after the date of the enactment of this 
    Act.
        (2) Coordination rules.--Subparagraph (B) of section 1212(a)(3) 
    of the Internal Revenue Code of 1986, as added by this section, 
    shall apply to taxable years beginning after the date of the 
    enactment of this Act.

  TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED 
                          INVESTMENT COMPANIES

    SEC. 201. SAVINGS PROVISIONS FOR FAILURES OF REGULATED INVESTMENT 
      COMPANIES TO SATISFY GROSS INCOME AND ASSET TESTS.
    (a) Asset Test.--Subsection (d) of section 851 is amended--
        (1) by striking ``A corporation which meets'' and inserting the 
    following:
        ``(1) In general.--A corporation which meets'', and
        (2) by adding at the end the following new paragraph:
        ``(2) Special rules regarding failure to satisfy 
    requirements.--If paragraph (1) does not preserve a corporation's 
    status as a regulated investment company for any particular 
    quarter--
            ``(A) In general.--A corporation that fails to meet the 
        requirements of subsection (b)(3) (other than a failure 
        described in subparagraph (B)(i)) for such quarter shall 
        nevertheless be considered to have satisfied the requirements 
        of such subsection for such quarter if--
                ``(i) following the corporation's identification of the 
            failure to satisfy the requirements of such subsection for 
            such quarter, a description of each asset that causes the 
            corporation to fail to satisfy the requirements of such 
            subsection at the close of such quarter is set forth in a 
            schedule for such quarter filed in the manner provided by 
            the Secretary,
                ``(ii) the failure to meet the requirements of such 
            subsection for such quarter is due to reasonable cause and 
            not due to willful neglect, and
                ``(iii)(I) the corporation disposes of the assets set 
            forth on the schedule specified in clause (i) within 6 
            months after the last day of the quarter in which the 
            corporation's identification of the failure to satisfy the 
            requirements of such subsection occurred or such other time 
            period prescribed by the Secretary and in the manner 
            prescribed by the Secretary, or
                ``(II) the requirements of such subsection are 
            otherwise met within the time period specified in subclause 
            (I).
            ``(B) Rule for certain de minimis failures.--A corporation 
        that fails to meet the requirements of subsection (b)(3) for 
        such quarter shall nevertheless be considered to have satisfied 
        the requirements of such subsection for such quarter if--
                ``(i) such failure is due to the ownership of assets 
            the total value of which does not exceed the lesser of--

                    ``(I) 1 percent of the total value of the 
                corporation's assets at the end of the quarter for 
                which such measurement is done, or
                    ``(II) $10,000,000, and

                ``(ii)(I) the corporation, following the identification 
            of such failure, disposes of assets in order to meet the 
            requirements of such subsection within 6 months after the 
            last day of the quarter in which the corporation's 
            identification of the failure to satisfy the requirements 
            of such subsection occurred or such other time period 
            prescribed by the Secretary and in the manner prescribed by 
            the Secretary, or
                ``(II) the requirements of such subsection are 
            otherwise met within the time period specified in subclause 
            (I).
            ``(C) Tax.--
                ``(i) Tax imposed.--If subparagraph (A) applies to a 
            corporation for any quarter, there is hereby imposed on 
            such corporation a tax in an amount equal to the greater 
            of--

                    ``(I) $50,000, or
                    ``(II) the amount determined (pursuant to 
                regulations promulgated by the Secretary) by 
                multiplying the net income generated by the assets 
                described in the schedule specified in subparagraph 
                (A)(i) for the period specified in clause (ii) by the 
                highest rate of tax specified in section 11.

                ``(ii) Period.--For purposes of clause (i)(II), the 
            period described in this clause is the period beginning on 
            the first date that the failure to satisfy the requirements 
            of subsection (b)(3) occurs as a result of the ownership of 
            such assets and ending on the earlier of the date on which 
            the corporation disposes of such assets or the end of the 
            first quarter when there is no longer a failure to satisfy 
            such subsection.
                ``(iii) Administrative provisions.--For purposes of 
            subtitle F, a tax imposed by this subparagraph shall be 
            treated as an excise tax with respect to which the 
            deficiency procedures of such subtitle apply.''.
    (b) Gross Income Test.--Section 851 is amended by adding at the end 
the following new subsection:
    ``(i) Failure To Satisfy Gross Income Test.--
        ``(1) Disclosure requirement.--A corporation that fails to meet 
    the requirement of paragraph (2) of subsection (b) for any taxable 
    year shall nevertheless be considered to have satisfied the 
    requirement of such paragraph for such taxable year if--
            ``(A) following the corporation's identification of the 
        failure to meet such requirement for such taxable year, a 
        description of each item of its gross income described in such 
        paragraph is set forth in a schedule for such taxable year 
        filed in the manner provided by the Secretary, and
            ``(B) the failure to meet such requirement is due to 
        reasonable cause and not due to willful neglect.
        ``(2) Imposition of tax on failures.--If paragraph (1) applies 
    to a regulated investment company for any taxable year, there is 
    hereby imposed on such company a tax in an amount equal to the 
    excess of--
            ``(A) the gross income of such company which is not derived 
        from sources referred to in subsection (b)(2), over
            ``(B) \1/9\ of the gross income of such company which is 
        derived from such sources.''.
    (c) Deduction of Taxes Paid From Investment Company Taxable 
Income.--Paragraph (2) of section 852(b) is amended by adding at the 
end the following new subparagraph:
            ``(G) There shall be deducted an amount equal to the tax 
        imposed by subsections (d)(2) and (i) of section 851 for the 
        taxable year.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years with respect to which the due date (determined 
with regard to any extensions) of the return of tax for such taxable 
year is after the date of the enactment of this Act.

    TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER 
                             DISTRIBUTIONS

    SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION REQUIREMENTS AND 
      ALLOCATION RULES FOR REGULATED INVESTMENT COMPANIES.
    (a) Capital Gain Dividends.--
        (1) In general.--Subparagraph (C) of section 852(b)(3) is 
    amended to read as follows:
            ``(C) Definition of capital gain dividend.--For purposes of 
        this part--
                ``(i) In general.--Except as provided in clause (ii), a 
            capital gain dividend is any dividend, or part thereof, 
            which is reported by the company as a capital gain dividend 
            in written statements furnished to its shareholders.
                ``(ii) Excess reported amounts.--If the aggregate 
            reported amount with respect to the company for any taxable 
            year exceeds the net capital gain of the company for such 
            taxable year, a capital gain dividend is the excess of--

                    ``(I) the reported capital gain dividend amount, 
                over
                    ``(II) the excess reported amount which is 
                allocable to such reported capital gain dividend 
                amount.

                ``(iii) Allocation of excess reported amount.--

                    ``(I) In general.--Except as provided in subclause 
                (II), the excess reported amount (if any) which is 
                allocable to the reported capital gain dividend amount 
                is that portion of the excess reported amount which 
                bears the same ratio to the excess reported amount as 
                the reported capital gain dividend amount bears to the 
                aggregate reported amount.
                    ``(II) Special rule for noncalendar year 
                taxpayers.--In the case of any taxable year which does 
                not begin and end in the same calendar year, if the 
                post-December reported amount equals or exceeds the 
                excess reported amount for such taxable year, subclause 
                (I) shall be applied by substituting `post-December 
                reported amount' for `aggregate reported amount' and no 
                excess reported amount shall be allocated to any 
                dividend paid on or before December 31 of such taxable 
                year.

                ``(iv) Definitions.--For purposes of this 
            subparagraph--

                    ``(I) Reported capital gain dividend amount.--The 
                term `reported capital gain dividend amount' means the 
                amount reported to its shareholders under clause (i) as 
                a capital gain dividend.
                    ``(II) Excess reported amount.--The term `excess 
                reported amount' means the excess of the aggregate 
                reported amount over the net capital gain of the 
                company for the taxable year.
                    ``(III) Aggregate reported amount.--The term 
                `aggregate reported amount' means the aggregate amount 
                of dividends reported by the company under clause (i) 
                as capital gain dividends for the taxable year 
                (including capital gain dividends paid after the close 
                of the taxable year described in section 855).
                    ``(IV) Post-december reported amount.--The term 
                `post-December reported amount' means the aggregate 
                reported amount determined by taking into account only 
                dividends paid after December 31 of the taxable year.

                ``(v) Adjustment for determinations.--If there is an 
            increase in the excess described in subparagraph (A) for 
            the taxable year which results from a determination (as 
            defined in section 860(e)), the company may, subject to the 
            limitations of this subparagraph, increase the amount of 
            capital gain dividends reported under clause (i).
                ``(vi) Special rule for losses late in the calendar 
            year.--For special rule for certain losses after October 
            31, see paragraph (8).''.
        (2) Conforming amendment.--Subparagraph (B) of section 
    860(f)(2) is amended by inserting ``or reported (as the case may 
    be)'' after ``designated''.
    (b) Exempt-Interest Dividends.--Subparagraph (A) of section 
852(b)(5) is amended to read as follows:
            ``(A) Definition of exempt-interest dividend.--
                ``(i) In general.--Except as provided in clause (ii), 
            an exempt-interest dividend is any dividend or part thereof 
            (other than a capital gain dividend) paid by a regulated 
            investment company and reported by the company as an 
            exempt-interest dividend in written statements furnished to 
            its shareholders.
                ``(ii) Excess reported amounts.--If the aggregate 
            reported amount with respect to the company for any taxable 
            year exceeds the exempt interest of the company for such 
            taxable year, an exempt-interest dividend is the excess 
            of--

                    ``(I) the reported exempt-interest dividend amount, 
                over
                    ``(II) the excess reported amount which is 
                allocable to such reported exempt-interest dividend 
                amount.

                ``(iii) Allocation of excess reported amount.--

                    ``(I) In general.--Except as provided in subclause 
                (II), the excess reported amount (if any) which is 
                allocable to the reported exempt-interest dividend 
                amount is that portion of the excess reported amount 
                which bears the same ratio to the excess reported 
                amount as the reported exempt-interest dividend amount 
                bears to the aggregate reported amount.
                    ``(II) Special rule for noncalendar year 
                taxpayers.--In the case of any taxable year which does 
                not begin and end in the same calendar year, if the 
                post-December reported amount equals or exceeds the 
                excess reported amount for such taxable year, subclause 
                (I) shall be applied by substituting `post-December 
                reported amount' for `aggregate reported amount' and no 
                excess reported amount shall be allocated to any 
                dividend paid on or before December 31 of such taxable 
                year.

                ``(iv) Definitions.--For purposes of this 
            subparagraph--

                    ``(I) Reported exempt-interest dividend amount.--
                The term `reported exempt-interest dividend amount' 
                means the amount reported to its shareholders under 
                clause (i) as an exempt-interest dividend.
                    ``(II) Excess reported amount.--The term `excess 
                reported amount' means the excess of the aggregate 
                reported amount over the exempt interest of the company 
                for the taxable year.
                    ``(III) Aggregate reported amount.--The term 
                `aggregate reported amount' means the aggregate amount 
                of dividends reported by the company under clause (i) 
                as exempt-interest dividends for the taxable year 
                (including exempt-interest dividends paid after the 
                close of the taxable year described in section 855).
                    ``(IV) Post-december reported amount.--The term 
                `post-December reported amount' means the aggregate 
                reported amount determined by taking into account only 
                dividends paid after December 31 of the taxable year.
                    ``(V) Exempt interest.--The term `exempt interest' 
                means, with respect to any regulated investment 
                company, the excess of the amount of interest 
                excludable from gross income under section 103(a) over 
                the amounts disallowed as deductions under sections 265 
                and 171(a)(2).''.

    (c) Foreign Tax Credits.--
        (1) In general.--Subsection (c) of section 853 is amended--
            (A) by striking ``so designated by the company in a written 
        notice mailed to its shareholders not later than 60 days after 
        the close of the taxable year'' and inserting ``so reported by 
        the company in a written statement furnished to such 
        shareholder'', and
            (B) by striking ``Notice'' in the heading and inserting 
        ``Statements''.
        (2) Conforming amendments.--Subsection (d) of section 853 is 
    amended--
            (A) by striking ``and the notice to shareholders required 
        by subsection (c)'' in the text thereof, and
            (B) by striking ``and Notifying Shareholders'' in the 
        heading thereof.
    (d) Credits for Tax Credit Bonds.--
        (1) In general.--Subsection (c) of section 853A is amended--
            (A) by striking ``so designated by the regulated investment 
        company in a written notice mailed to its shareholders not 
        later than 60 days after the close of its taxable year'' and 
        inserting ``so reported by the regulated investment company in 
        a written statement furnished to such shareholder'', and
            (B) by striking ``Notice'' in the heading and inserting 
        ``Statements''.
        (2) Conforming amendments.--Subsection (d) of section 853A is 
    amended--
            (A) by striking ``and the notice to shareholders required 
        by subsection (c)'' in the text thereof, and
            (B) by striking ``and Notifying Shareholders'' in the 
        heading thereof.
    (e) Dividend Received Deduction, etc.--
        (1) In general.--Paragraph (1) of section 854(b) is amended--
            (A) by striking ``designated under this subparagraph by the 
        regulated investment company'' in subparagraph (A) and 
        inserting ``reported by the regulated investment company as 
        eligible for such deduction in written statements furnished to 
        its shareholders'',
            (B) by striking ``designated by the regulated investment 
        company'' in subparagraph (B)(i) and inserting ``reported by 
        the regulated investment company as qualified dividend income 
        in written statements furnished to its shareholders'',
            (C) by striking ``designated'' in subparagraph (C)(i) and 
        inserting ``reported'', and
            (D) by striking ``designated'' in subparagraph (C)(ii) and 
        inserting ``reported''.
        (2) Conforming amendments.--Subsection (b) of section 854 is 
    amended by striking paragraph (2) and by redesignating paragraphs 
    (3), (4), and (5), as paragraphs (2), (3), and (4), respectively.
    (f) Dividends Paid to Certain Foreign Persons.--
        (1) Interest-related dividends.--Subparagraph (C) of section 
    871(k)(1) is amended by striking all that precedes ``any taxable 
    year of the company beginning'' and inserting the following:
            ``(C) Interest-related dividend.--For purposes of this 
        paragraph--
                ``(i) In general.--Except as provided in clause (ii), 
            an interest related dividend is any dividend, or part 
            thereof, which is reported by the company as an interest 
            related dividend in written statements furnished to its 
            shareholders.
                ``(ii) Excess reported amounts.--If the aggregate 
            reported amount with respect to the company for any taxable 
            year exceeds the qualified net interest income of the 
            company for such taxable year, an interest related dividend 
            is the excess of--

                    ``(I) the reported interest related dividend 
                amount, over
                    ``(II) the excess reported amount which is 
                allocable to such reported interest related dividend 
                amount.

                ``(iii) Allocation of excess reported amount.--

                    ``(I) In general.--Except as provided in subclause 
                (II), the excess reported amount (if any) which is 
                allocable to the reported interest related dividend 
                amount is that portion of the excess reported amount 
                which bears the same ratio to the excess reported 
                amount as the reported interest related dividend amount 
                bears to the aggregate reported amount.
                    ``(II) Special rule for noncalendar year 
                taxpayers.--In the case of any taxable year which does 
                not begin and end in the same calendar year, if the 
                post-December reported amount equals or exceeds the 
                excess reported amount for such taxable year, subclause 
                (I) shall be applied by substituting `post-December 
                reported amount' for `aggregate reported amount' and no 
                excess reported amount shall be allocated to any 
                dividend paid on or before December 31 of such taxable 
                year.

                ``(iv) Definitions.--For purposes of this 
            subparagraph--

                    ``(I) Reported interest related dividend amount.--
                The term `reported interest related dividend amount' 
                means the amount reported to its shareholders under 
                clause (i) as an interest related dividend.
                    ``(II) Excess reported amount.--The term `excess 
                reported amount' means the excess of the aggregate 
                reported amount over the qualified net interest income 
                of the company for the taxable year.
                    ``(III) Aggregate reported amount.--The term 
                `aggregate reported amount' means the aggregate amount 
                of dividends reported by the company under clause (i) 
                as interest related dividends for the taxable year 
                (including interest related dividends paid after the 
                close of the taxable year described in section 855).
                    ``(IV) Post-december reported amount.--The term 
                `post-December reported amount' means the aggregate 
                reported amount determined by taking into account only 
                dividends paid after December 31 of the taxable year.

                ``(v) Termination.--The term `interest related 
            dividend' shall not include any dividend with respect to''.
        (2) Short-term capital gain dividends.--Subparagraph (C) of 
    section 871(k)(2) is amended by striking all that precedes ``any 
    taxable year of the company beginning'' and inserting the 
    following:
            ``(C) Short-term capital gain dividend.--For purposes of 
        this paragraph--
                ``(i) In general.--Except as provided in clause (ii), 
            the term `short-term capital gain dividend' means any 
            dividend, or part thereof, which is reported by the company 
            as a short-term capital gain dividend in written statements 
            furnished to its shareholders.
                ``(ii) Excess reported amounts.--If the aggregate 
            reported amount with respect to the company for any taxable 
            year exceeds the qualified short-term gain of the company 
            for such taxable year, the term `short-term capital gain 
            dividend' means the excess of--

                    ``(I) the reported short-term capital gain dividend 
                amount, over
                    ``(II) the excess reported amount which is 
                allocable to such reported short-term capital gain 
                dividend amount.

                ``(iii) Allocation of excess reported amount.--

                    ``(I) In general.--Except as provided in subclause 
                (II), the excess reported amount (if any) which is 
                allocable to the reported short-term capital gain 
                dividend amount is that portion of the excess reported 
                amount which bears the same ratio to the excess 
                reported amount as the reported short-term capital gain 
                dividend amount bears to the aggregate reported amount.
                    ``(II) Special rule for noncalendar year 
                taxpayers.--In the case of any taxable year which does 
                not begin and end in the same calendar year, if the 
                post-December reported amount equals or exceeds the 
                excess reported amount for such taxable year, subclause 
                (I) shall be applied by substituting `post-December 
                reported amount' for `aggregate reported amount' and no 
                excess reported amount shall be allocated to any 
                dividend paid on or before December 31 of such taxable 
                year.

                ``(iv) Definitions.--For purposes of this 
            subparagraph--

                    ``(I) Reported short-term capital gain dividend 
                amount.--The term `reported short-term capital gain 
                dividend amount' means the amount reported to its 
                shareholders under clause (i) as a short-term capital 
                gain dividend.
                    ``(II) Excess reported amount.--The term `excess 
                reported amount' means the excess of the aggregate 
                reported amount over the qualified short-term gain of 
                the company for the taxable year.
                    ``(III) Aggregate reported amount.--The term 
                `aggregate reported amount' means the aggregate amount 
                of dividends reported by the company under clause (i) 
                as short-term capital gain dividends for the taxable 
                year (including short-term capital gain dividends paid 
                after the close of the taxable year described in 
                section 855).
                    ``(IV) Post-december reported amount.--The term 
                `post-December reported amount' means the aggregate 
                reported amount determined by taking into account only 
                dividends paid after December 31 of the taxable year.

                ``(v) Termination.--The term `short-term capital gain 
            dividend' shall not include any dividend with respect to''.
    (g) Conforming Amendments.--Section 855 is amended--
        (1) by striking subsection (c) and redesignating subsection (d) 
    as subsection (c), and
        (2) by striking ``, (c) and (d)'' in subsection (a) and 
    inserting ``and (c)''.
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
    (i) Application of JGTRRA Sunset.--Section 303 of the Jobs and 
Growth Tax Relief Reconciliation Act of 2003 shall apply to the 
amendments made by subparagraphs (B) and (D) of subsection (e)(1) to 
the same extent and in the same manner as section 303 of such Act 
applies to the amendments made by section 302 of such Act.
    SEC. 302. EARNINGS AND PROFITS OF REGULATED INVESTMENT COMPANIES.
    (a) In General.--Paragraph (1) of section 852(c) is amended to read 
as follows:
        ``(1) Treatment of nondeductible items.--
            ``(A) Net capital loss.--If a regulated investment company 
        has a net capital loss for any taxable year--
                ``(i) such net capital loss shall not be taken into 
            account for purposes of determining the company's earnings 
            and profits, and
                ``(ii) any capital loss arising on the first day of the 
            next taxable year by reason of clause (ii) or (iii) of 
            section 1212(a)(3)(A) shall be treated as so arising for 
            purposes of determining earnings and profits.
            ``(B) Other nondeductible items.--
                ``(i) In general.--The earnings and profits of a 
            regulated investment company for any taxable year (but not 
            its accumulated earnings and profits) shall not be reduced 
            by any amount which is not allowable as a deduction (other 
            than by reason of section 265 or 171(a)(2)) in computing 
            its taxable income for such taxable year.
                ``(ii) Coordination with treatment of net capital 
            losses.--Clause (i) shall not apply to a net capital loss 
            to which subparagraph (A) applies.''.
    (b) Conforming Amendments.--
        (1) Subsection (c) of section 852 is amended by adding at the 
    end the following new paragraph:
        ``(4) Regulated investment company.--For purposes of this 
    subsection, the term `regulated investment company' includes a 
    domestic corporation which is a regulated investment company 
    determined without regard to the requirements of subsection (a).''.
        (2) Paragraphs (1)(A) and (2)(A) of section 871(k) are each 
    amended by inserting ``which meets the requirements of section 
    852(a) for the taxable year with respect to which the dividend is 
    paid'' before the period at the end.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
    SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS AND FOREIGN TAX 
      CREDITS IN FUND OF FUNDS STRUCTURE.
    (a) In General.--Section 852 is amended by adding at the end the 
following new subsection:
    ``(g) Special Rules for Fund of Funds.--
        ``(1) In general.--In the case of a qualified fund of funds--
            ``(A) such fund shall be qualified to pay exempt-interest 
        dividends to its shareholders without regard to whether such 
        fund satisfies the requirements of the first sentence of 
        subsection (b)(5), and
            ``(B) such fund may elect the application of section 853 
        (relating to foreign tax credit allowed to shareholders) 
        without regard to the requirement of subsection (a)(1) thereof.
        ``(2) Qualified fund of funds.--For purposes of this 
    subsection, the term `qualified fund of funds' means a regulated 
    investment company if (at the close of each quarter of the taxable 
    year) at least 50 percent of the value of its total assets is 
    represented by interests in other regulated investment 
    companies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.
    SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVIDENDS OF 
      REGULATED INVESTMENT COMPANIES.
    (a) Deadline for Declaration of Dividend.--Paragraph (1) of section 
855(a) is amended to read as follows:
        ``(1) declares a dividend before the later of--
            ``(A) the 15th day of the 9th month following the close of 
        the taxable year, or
            ``(B) in the case of an extension of time for filing the 
        company's return for the taxable year, the due date for filing 
        such return taking into account such extension, and''.
    (b) Deadline for Distribution of Dividend.--Paragraph (2) of 
section 855(a) is amended by striking ``the first regular dividend 
payment'' and inserting ``the first dividend payment of the same type 
of dividend''.
    (c) Short-term Capital Gain.--Subsection (a) of section 855 is 
amended by adding at the end the following: ``For purposes of paragraph 
(2), a dividend attributable to any short-term capital gain with 
respect to which a notice is required under the Investment Company Act 
of 1940 shall be treated as the same type of dividend as a capital gain 
dividend.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions in taxable years beginning after the date of the 
enactment of this Act.
    SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGULATED INVESTMENT 
      COMPANIES.
    (a) In General.--Subsection (b) of section 316 is amended by adding 
at the end the following new paragraph:
        ``(4) Certain distributions by regulated investment companies 
    in excess of earnings and profits.--In the case of a regulated 
    investment company that has a taxable year other than a calendar 
    year, if the distributions by the company with respect to any class 
    of stock of such company for the taxable year exceed the company's 
    current and accumulated earnings and profits which may be used for 
    the payment of dividends on such class of stock, the company's 
    current earnings and profits shall, for purposes of subsection (a), 
    be allocated first to distributions with respect to such class of 
    stock made during the portion of the taxable year which precedes 
    January 1.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions made in taxable years beginning after the date of the 
enactment of this Act.
    SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A REGULATED 
      INVESTMENT COMPANY.
    (a) Redemptions Treated as Exchanges.--
        (1) In general.--Subsection (b) of section 302 is amended by 
    redesignating paragraph (5) as paragraph (6) and by inserting after 
    paragraph (4) the following new paragraph:
        ``(5) Redemptions by certain regulated investment companies.--
    Except to the extent provided in regulations prescribed by the 
    Secretary, subsection (a) shall apply to any distribution in 
    redemption of stock of a publicly offered regulated investment 
    company (within the meaning of section 67(c)(2)(B)) if--
            ``(A) such redemption is upon the demand of the 
        stockholder, and
            ``(B) such company issues only stock which is redeemable 
        upon the demand of the stockholder.''.
        (2) Conforming amendment.--Subsection (a) of section 302 is 
    amended by striking ``or (4)'' and inserting ``(4), or (5)''.
    (b) Losses on Redemptions Not Disallowed for Fund-of-funds 
Regulated Investment Companies.--Paragraph (3) of section 267(f) is 
amended by adding at the end the following new subparagraph:
            ``(D) Redemptions by fund-of-funds regulated investment 
        companies.--Except to the extent provided in regulations 
        prescribed by the Secretary, subsection (a)(1) shall not apply 
        to any distribution in redemption of stock of a regulated 
        investment company if--
                ``(i) such company issues only stock which is 
            redeemable upon the demand of the stockholder, and
                ``(ii) such redemption is upon the demand of another 
            regulated investment company.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after the date of the enactment of this Act.
    SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY OFFERED 
      REGULATED INVESTMENT COMPANIES.
    (a) In General.--Subsection (c) of section 562 is amended by 
striking ``The amount'' and inserting ``Except in the case of a 
publicly offered regulated investment company (as defined in section 
67(c)(2)(B)), the amount''.
    (b) Conforming Amendment.--Section 562(c) is amended by inserting 
``(other than a publicly offered regulated investment company (as so 
defined))'' after ``regulated investment company'' in the second 
sentence thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions in taxable years beginning after the date of the 
enactment of this Act.
    SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR LOSSES OF 
      REGULATED INVESTMENT COMPANIES.
    (a) In General.--Paragraph (8) of section 852(b) is amended to read 
as follows:
        ``(8) Elective deferral of certain late-year losses.--
            ``(A) In general.--Except as otherwise provided by the 
        Secretary, a regulated investment company may elect for any 
        taxable year to treat any portion of any qualified late-year 
        loss for such taxable year as arising on the first day of the 
        following taxable year for purposes of this title.
            ``(B) Qualified late-year loss.--For purposes of this 
        paragraph, the term `qualified late-year loss' means--
                ``(i) any post-October capital loss, and
                ``(ii) any late-year ordinary loss.
            ``(C) Post-october capital loss.--For purposes of this 
        paragraph, the term `post-October capital loss' means the 
        greatest of--
                ``(i) the net capital loss attributable to the portion 
            of the taxable year after October 31,
                ``(ii) the net long-term capital loss attributable to 
            such portion of the taxable year, or
                ``(iii) the net short-term capital loss attributable to 
            such portion of the taxable year.
            ``(D) Late-year ordinary loss.--For purposes of this 
        paragraph, the term `late-year ordinary loss' means the excess 
        (if any) of--
                ``(i) the sum of--

                    ``(I) the specified losses (as defined in section 
                4982(e)(5)(B)(ii)) attributable to the portion of the 
                taxable year after October 31, plus
                    ``(II) the ordinary losses not described in 
                subclause (I) attributable to the portion of the 
                taxable year after December 31, over

                ``(ii) the sum of--

                    ``(I) the specified gains (as defined in section 
                4982(e)(5)(B)(i)) attributable to the portion of the 
                taxable year after October 31, plus
                    ``(II) the ordinary income not described in 
                subclause (I) attributable to the portion of the 
                taxable year after December 31.

            ``(E) Special rule for companies determining required 
        capital gain distributions on taxable year basis.--In the case 
        of a company to which an election under section 4982(e)(4) 
        applies--
                ``(i) if such company's taxable year ends with the 
            month of November, the amount of qualified late-year losses 
            (if any) shall be computed without regard to any income, 
            gain, or loss described in subparagraphs (C), (D)(i)(I), 
            and (D)(ii)(I), and
                ``(ii) if such company's taxable year ends with the 
            month of December, subparagraph (A) shall not apply.''.
    (b) Conforming Amendments.--
        (1) Subsection (b) of section 852 is amended by striking 
    paragraph (10).
        (2) Paragraph (2) of section 852(c) is amended by striking the 
    first sentence and inserting the following: ``For purposes of 
    applying this chapter to distributions made by a regulated 
    investment company with respect to any calendar year, the earnings 
    and profits of such company shall be determined without regard to 
    any net capital loss attributable to the portion of the taxable 
    year after October 31 and without regard to any late-year ordinary 
    loss (as defined in subsection (b)(8)(D)).''
        (3) Subparagraph (D) of section 871(k)(2) is amended by 
    striking the last two sentences and inserting the following: ``For 
    purposes of this subparagraph, the net short-term capital gain of 
    the regulated investment company shall be computed by treating any 
    short-term capital gain dividend includible in gross income with 
    respect to stock of another regulated investment company as a 
    short-term capital gain.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
    SEC. 309. EXCEPTION TO HOLDING PERIOD REQUIREMENT FOR CERTAIN 
      REGULARLY DECLARED EXEMPT-INTEREST DIVIDENDS.
    (a) In General.--Subparagraph (E) of section 852(b)(4) is amended 
by striking all that precedes ``In the case of a regulated investment 
company'' and inserting the following:
            ``(E) Exception to holding period requirement for certain 
        regularly declared exempt-interest dividends.--
                ``(i) Daily dividend companies.--Except as otherwise 
            provided by regulations, subparagraph (B) shall not apply 
            with respect to a regular dividend paid by a regulated 
            investment company which declares exempt-interest dividends 
            on a daily basis in an amount equal to at least 90 percent 
            of its net tax-exempt interest and distributes such 
            dividends on a monthly or more frequent basis.
                ``(ii) Authority to shorten required holding period 
            with respect to other companies.--''.
    (b) Conforming Amendment.--Clause (ii) of section 852(b)(4)(E), as 
amended by subsection (a), is amended by inserting ``(other than a 
company described in clause (i))'' after ``regulated investment 
company''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses incurred on shares of stock for which the taxpayer's 
holding period begins after the date of the enactment of this Act.

 TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED 
                          INVESTMENT COMPANIES

    SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGULATED INVESTMENT 
      COMPANIES OWNED BY TAX EXEMPT ENTITIES.
    (a) In General.--Subsection (f) of section 4982 is amended--
        (1) by striking ``either'' in the matter preceding paragraph 
    (1),
        (2) by striking ``or'' at the end of paragraph (1),
        (3) by striking the period at the end of paragraph (2), and
        (4) by inserting after paragraph (2) the following new 
    paragraphs:
        ``(3) any other tax-exempt entity whose ownership of beneficial 
    interests in the company would not preclude the application of 
    section 817(h)(4), or
        ``(4) another regulated investment company described in this 
    subsection.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after the date of the enactment of this 
Act.
    SEC. 402. DEFERRAL OF CERTAIN GAINS AND LOSSES OF REGULATED 
      INVESTMENT COMPANIES FOR EXCISE TAX PURPOSES.
    (a) In General.--Subsection (e) of section 4982 is amended by 
striking paragraphs (5) and (6) and inserting the following new 
paragraphs:
        ``(5) Treatment of specified gains and losses after october 31 
    of calendar year.--
            ``(A) In general.--Any specified gain or specified loss 
        which (but for this paragraph) would be properly taken into 
        account for the portion of the calendar year after October 31 
        shall be treated as arising on January 1 of the following 
        calendar year.
            ``(B) Specified gains and losses.--For purposes of this 
        paragraph--
                ``(i) Specified gain.--The term `specified gain' means 
            ordinary gain from the sale, exchange, or other disposition 
            of property (including the termination of a position with 
            respect to such property). Such term shall include any 
            foreign currency gain attributable to a section 988 
            transaction (within the meaning of section 988) and any 
            amount includible in gross income under section 1296(a)(1).
                ``(ii) Specified loss.--The term `specified loss' means 
            ordinary loss from the sale, exchange, or other disposition 
            of property (including the termination of a position with 
            respect to such property). Such term shall include any 
            foreign currency loss attributable to a section 988 
            transaction (within the meaning of section 988) and any 
            amount allowable as a deduction under section 1296(a)(2).
            ``(C) Special rule for companies electing to use the 
        taxable year.--In the case of any company making an election 
        under paragraph (4), subparagraph (A) shall be applied by 
        substituting the last day of the company's taxable year for 
        October 31.
        ``(6) Treatment of mark to market gain.--
            ``(A) In general.--For purposes of determining a regulated 
        investment company's ordinary income, notwithstanding paragraph 
        (1)(C), each specified mark to market provision shall be 
        applied as if such company's taxable year ended on October 31. 
        In the case of a company making an election under paragraph 
        (4), the preceding sentence shall be applied by substituting 
        the last day of the company's taxable year for October 31.
            ``(B) Specified mark to market provision.--For purposes of 
        this paragraph, the term `specified mark to market provision' 
        means sections 1256 and 1296 and any other provision of this 
        title (or regulations thereunder) which treats property as 
        disposed of on the last day of the taxable year.
        ``(7) Elective deferral of certain ordinary losses.--Except as 
    provided in regulations prescribed by the Secretary, in the case of 
    a regulated investment company which has a taxable year other than 
    the calendar year--
            ``(A) such company may elect to determine its ordinary 
        income for the calendar year without regard to any net ordinary 
        loss (determined without regard to specified gains and losses 
        taken into account under paragraph (5)) which is attributable 
        to the portion of such calendar year which is after the 
        beginning of the taxable year which begins in such calendar 
        year, and
            ``(B) any amount of net ordinary loss not taken into 
        account for a calendar year by reason of subparagraph (A) shall 
        be treated as arising on the 1st day of the following calendar 
        year.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after the date of the enactment of 
this Act.
    SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PURPOSES DETERMINED ON 
      BASIS OF TAXES PAID BY REGULATED INVESTMENT COMPANY.
    (a) In General.--Subsection (c) of section 4982 is amended by 
adding at the end the following new paragraph:
        ``(4) Special rule for estimated tax payments.--
            ``(A) In general.--In the case of a regulated investment 
        company which elects the application of this paragraph for any 
        calendar year--
                ``(i) the distributed amount with respect to such 
            company for such calendar year shall be increased by the 
            amount on which qualified estimated tax payments are made 
            by such company during such calendar year, and
                ``(ii) the distributed amount with respect to such 
            company for the following calendar year shall be reduced by 
            the amount of such increase.
            ``(B) Qualified estimated tax payments.--For purposes of 
        this paragraph, the term `qualified estimated tax payments' 
        means, with respect to any calendar year, payments of estimated 
        tax of a tax described in paragraph (1)(B) for any taxable year 
        which begins (but does not end) in such calendar year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after the date of the enactment of this 
Act.
    SEC. 404. INCREASE IN REQUIRED DISTRIBUTION OF CAPITAL GAIN NET 
      INCOME.
    (a) In General.--Subparagraph (B) of section 4982(b)(1) is amended 
by striking ``98 percent'' and inserting ``98.2 percent''.
    (b) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after the date of the enactment of 
this Act.

                       TITLE V--OTHER PROVISIONS

    SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RESPECT TO LIABILITY 
      FOR TAX OF REGULATED INVESTMENT COMPANIES.
    (a) In General.--Part I of subchapter B of chapter 68 is amended by 
striking section 6697 (and by striking the item relating to such 
section in the table of sections of such part).
    (b) Conforming Amendment.--Section 860 is amended by striking 
subsection (j).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
    SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL RULE FOR 
      REGULATED INVESTMENT COMPANIES.
    (a) In General.--Subparagraph (C) of section 852(f)(1) is amended 
by striking ``subsequently acquires'' and inserting ``acquires, during 
the period beginning on the date of the disposition referred to in 
subparagraph (B) and ending on January 31 of the calendar year 
following the calendar year that includes the date of such 
disposition,''.
    (b) Effective Date.--The amendment made by this section shall apply 
to charges incurred in taxable years beginning after the date of the 
enactment of this Act.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.