    [United States Statutes at Large, Volume 124, 111th Congress, 2nd Session]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    Public Law 111-325
    111th Congress

    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.

    [[Page 3538]]

    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

    [[Page 3539]]

    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--

    [[Page 3540]]

    ``(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

    [[Page 3541]]

    ``(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

    [[Page 3542]]

    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.

    [[Page 3543]]

    ``(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

    [[Page 3544]]

    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.--

    [[Page 3545]]

    (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

    [[Page 3546]]

    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.

    [[Page 3547]]

    ``(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.

    [[Page 3548]]

    ``(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''.

    [[Page 3549]]

    (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--

    [[Page 3550]]

    ``(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--

    [[Page 3551]]

    ``(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.

    [[Page 3552]]

    ``(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

    [[Page 3553]]

    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.--

    [[Page 3554]]

    ``(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,''.

    [[Page 3555]]

    (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.

    Approved December 22, 2010.

    LEGISLATIVE HISTORY--H.R. 4337:
    ---------------------------------------------------------------------------

    CONGRESSIONAL RECORD, Vol. 156 (2010):
    Sept. 28, considered and passed House.
    Dec. 8, considered and passed Senate, amended.
    Dec. 15, House concurred in Senate amendment.