[Congressional Record Volume 156, Number 166 (Wednesday, December 15, 2010)]
[House]
[Pages H8412-H8418]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
REGULATED INVESTMENT COMPANY MODERNIZATION ACT OF 2010
Mr. LEVIN. Madam Speaker, I move to suspend the rules and concur in
the Senate amendment to the bill (H.R. 4337) to amend the Internal
Revenue Code of 1986 to modify certain rules applicable to regulated
investment companies, and for other purposes.
The Clerk read the title of the bill.
The text of the Senate amendment is as follows:
Senate 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 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.
[[Page H8413]]
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
[[Page H8414]]
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:
[[Page H8415]]
``(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
[[Page H8416]]
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.''.
[[Page H8417]]
(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.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Michigan (Mr. Levin) and the gentleman from Ohio (Mr. Tiberi) each will
control 20 minutes.
The Chair recognizes the gentleman from Michigan.
General Leave
Mr. LEVIN. Madam Speaker, I ask unanimous consent that all Members
have 5 legislative days to revise and extend their remarks and insert
any extraneous material in the Congressional Record.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Michigan?
There was no objection.
Mr. LEVIN. I yield such time as he may consume to the gentleman from
Massachusetts (Mr. Neal), someone who has been working on this issue
for--I don't know how long--a long time.
Mr. NEAL. I thank the chairman.
Madam Speaker, this legislation has already passed the House. It
really was a bipartisan achievement this year, and much of the good
work that went into this legislation has been years in coming.
More than 100 years ago, the first mutual fund was started in Boston,
Massachusetts. Mutual funds have been a way for the ``everyman'' to
invest in the market with benefits of pooling and diversification.
Today, more than 50 million households invest through mutual funds with
a median household income of $80,000. More than 50 percent of 401(k)
plan assets were invested in mutual funds at the end of 2009.
H.R. 4337 was introduced last year by Mr. Rangel and me to modernize
the tax laws regarding regulated investment companies, better known as
mutual funds. The tax rules that relate to mutual funds date back more
than 50 years, and although these rules have been updated from time to
time, it has been over 20 years since the rules were last revisited.
The bill before us today would make several changes to the Tax Code
to address outdated provisions, such as rules that relate to
preferential dividends, rules that require mutual funds to send
separate annual dividend designation notices to shareholders, and rules
that prevent mutual funds from earning income from commodities.
In June, my subcommittee, the Select Revenue Measures Subcommittee,
reviewed this legislation with a panel of experts who expressed support
for the changes. Simply put, the subcommittee held a hearing, and there
was broad support on the Democratic side and on the Republican side for
the accomplishment that sits in front of us.
I am pleased to support this modified legislation, which is also
revenue neutral. The Ways and Means Committee has a responsibility to
review our tax rules from time to time and to remove the deadwood and
update where necessary. This bill accomplishes that to the benefit of
the investors, taxpayers, and mutual fund companies.
I urge its adoption. I thank the chairman for yielding to me, and I
thank our friends on the other side for their endorsement of this
legislation as well.
Mr. TIBERI. I yield myself such time as I may consume.
Madam Speaker, as was just said, regulated investment companies,
better known as mutual funds to most Americans and to us, are intended
to provide individual investors the ability to invest easily and with
low cost in a diversified pool of professionally managed investments,
and they have worked. In fact, according to the Investment Company
Institute, the largest trade association for mutual funds, as Chairman
Neal said, more than 50 million American families currently invest in
mutual funds.
Most of the current laws that mutual funds have to deal with have not
been comprehensively updated for more than two decades. In fact, H.R.
4337 would modify and update certain technical tax rules pertaining to
mutual funds. These changes will allow mutual funds to better conform
to and interact with other aspects of the Tax Code and security laws.
As Chairman Neal said, we had a wonderful hearing where every single
person who testified agreed to the changes in the underlying piece of
legislation. It was passed in this House unanimously after that hearing
this last summer. Every witness was supportive, and no opposition came
before us with respect to the legislation. It was passed in the Senate
last week by unanimous consent, with one change.
My hope is today, Chairman Levin, Chairman Neal, Madam Speaker, that
this House will once again vote for this underlying piece of
legislation with the one change and send it on to the President. Let's
make this change, and let's give American mutual fund investors some
certainty into the future.
I yield back the balance of my time.
Mr. LEVIN. Madam Speaker, the bill before us right now makes
important changes to the tax law rules that relate, as Mr. Neal and Mr.
Tiberi said, to regulated investment companies, more commonly known as
mutual funds. They were described 80 years ago in testimony before the
Ways and Means Committee as, ``A group of small investors who have
banded together for the purpose of obtaining diversity and supervision
through the medium of pooling their investments.''
While mutual funds continue to serve this important role, the tax
rules that govern mutual funds have not been updated in over 20 years.
In June of this year, the Select Revenue Measures Subcommittee, chaired
by Mr. Neal, heard testimony from a variety of industry experts
stressing the importance of modifying our Nation's tax laws to ensure
that the technical tax rules pertaining to mutual funds would better
interact with other tax rules.
The Ways and Means Committee and the Congress have an obligation to
ensure that our tax rules keep up with the times, so the bill before us
would update and simplify the rules that apply to mutual funds to
ensure that small investors are not disadvantaged simply because they
band their investments together through a mutual fund rather than
investing directly.
The bill enjoys strong bipartisan support. It passed the House by
voice vote earlier this year and just last week was amended to pass the
Senate by unanimous consent.
I want to thank all of my colleagues on Ways and Means and all others
who joined for their contributions to ensure that these important
changes to the mutual fund rules can be swiftly signed into law by the
President of the United States. Passage today will do just that. So I
urge strong support for this measure.
I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Michigan (Mr. Levin) that the House suspend the rules
and concur in the Senate amendment to the bill, H.R. 4337.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the Senate amendment was concurred in.
A motion to reconsider was laid on the table.
[[Page H8418]]
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